According to Dow Jones Market Data, the S&P 500 index has traded higher 78% of the time during the end of the year for an average gain of 1.3%. This trend has earned the moniker of the Santa Claus rally.
However, this year has been one of those 22% of years with no Santa Claus rally. Unpleasant geopolitical surprises, decades-high inflation, and an unusually hawkish Federal Reserve have got us to a situation where positive data churned by a resilient economy was greeted with fresh bouts of volatility and panic-driven selloffs.
This week’s market pullback raised a few eyebrows as investors have been left to digest China’s plans to scrap all quarantine measures for Covid-19, including requirements for inbound visitors, both foreigners and Chinese nationals, from January 8. This news is likely to ripple through global economies and markets at a time when the effects of tightening monetary policy around the world are still being assessed.
Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors, summed up this scenario by commenting that it is “the market’s way of kicking a man while he’s down.”
In such a scenario, shares of fundamentally strong businesses belonging to sectors whose demand is immune to an economic slowdown seem ideal investments to cushion one’s portfolio.
To that end, we think Walmart Inc. (WMT), Pfizer Inc. (PFE), and Cigna Corporation (CI) look fundamentally strong enough to cushion your portfolio.
Walmart Inc. (WMT)
As a world-renowned big box retailer, WMT offers opportunities to shop an assortment of merchandise and services at everyday low prices (EDLP) in retail stores and through e-commerce platforms. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
On December 20, WMT announced that it had reached an agreement with 50 states for finalizing the company’s $3.1 billion nationwide opioid settlement framework announced on Nov. 15. This marks a positive step for WMT, which will benefit from moving on from the litigation while helping communities fight the opioid crisis through its pharmacists, who help patients understand the risks about opioid prescriptions.
On October 27, WMT and Netflix (NFLX) announced an in-store expansion of the popular Netflix Hub in more than 2,400 stores. It would offer customers a brand-new streaming gift card, fan-favorite exclusives, and more.
For the third quarter of the fiscal year 2023 ended October 31, 2022, WMT’s total revenues increased 8.7% year-over-year to $152.81 billion, with strength in Walmart U.S., Sam’s Club U.S., Flipkart, and Walmex.
During the same period, the company’s adjusted operating income increased 4.6% year-over-year to $6.06 billion, while its adjusted EPS increased 3.4% year-over-year to $1.50.
WMT pays a $2.24 per share dividend annually, translating to a yield of 1.59% at the current price. The company has a four-year average dividend yield of 1.70%. The company has increased its dividend for 49 consecutive years.
WMT’s revenue and EPS for the fiscal year ending January 2024 are expected to increase 3% and 8.6% year-over-year to $619.70 billion and $6.59, respectively. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 15.5% over the past six months to close the last trading session at $141.29.
WMT’s solid prospects are reflected in its overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
WMT also has an A grade for Sentiment and a B for stability. It is ranked #8 of 39 stocks within the A-rated Grocery/Big Box Retailers industry
Click here to see the additional POWR Ratings of WMT for Growth, Value, Quality, and Momentum.
Pfizer Inc. (PFE)
PFE is a world-renowned research-based biopharmaceutical company. The company discovers, develops, manufactures, sells, and distributes biopharmaceutical products, such as medicines, vaccines, and other therapies. The company operates through two segments: Biopharma and PC1.
On December 21, PFE announced that the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) had accepted its regulatory submissions for Etrasimod for individuals living with moderately-to-severely active ulcerative colitis (UC). In addition to UC, it is being investigated for a range of other immuno-inflammatory diseases.
On December 9, PFE announced its regular quarterly dividend of $0.41 per share of common stock, payable March 3, 2023, to holders of record at the close of business on January 27, 2023. The first-quarter 2023 cash dividend will be Pfizer's 337th consecutive quarterly dividend.
PFE pays a dividend of $1.64 per share annually, translating to a yield of 3.23% at the current price. This compares to the 4-year average dividend yield of 3.63%. The company’s dividend payouts have increased at 5.7% CAGR over the past five years.
On December 8, PFE and BioNTech SE (BNTX) announced that the FDA had granted Emergency Use Authorization (EUA) of their Omicron BA.4/BA.5-adapted bivalent COVID-19 vaccine as the third 3-µg dose in the three-dose primary series for children six months through four years of age.
This approval is timely, given the current resurgence of infections in various regions worldwide.
During the fiscal third quarter ended September 2022, PFE’s income from continuing operations improved 5.8% year-over-year to $8.65 billion. Its non-GAAP net income attributable to Pfizer Inc. common shareholders rose 39.7% year-over-year to $10.17 billion, while its non-GAAP EPS grew 40.2% year-over-year to $1.78.
Analysts expect PFE’s revenue and EPS for the fiscal year 2022 to increase 23.2% and 46.5% year-over-year to $100.17 billion and $6.48, respectively. Moreover, the company has an impressive earnings surprise history as it has topped the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 2.8% over the past month to close the last trading session at $50.80.
PFE’s stellar prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It also has an A grade for Value and a B for Growth, Sentiment, and Quality.
PFE is ranked #2 of 159 stocks in the Medical – Pharmaceutical industry. Click here for PFE’s ratings for Momentum and Stability.
Cigna Corporation (CI)
CI provides medical and dental insurance and related products and services. The company operates through Evernorth and Cigna Healthcare segments.
On December 21, CI paid its quarterly dividend of $1.12 per share. The company pays a dividend of $4.48 per share annually. This translates to a 1.34% yield at the current price, above the 4-year average yield of 0.61%. The company’s dividend payouts have grown phenomenally at 382% CAGR over the last three years.
On November 7, VillageMD announced its entry into a definitive agreement to acquire Summit Health-CityMD. Walgreens Boots Alliance, Inc. (WBA) and Evernorth have funded the acquisition valued at approximately $8.9 billion. The combined entity is expected to create a multi-payer platform to deliver quality, affordable care for all patients.
On November 2, CI introduced its Medicare Advantage (MA) plans in the Savannah, Columbus, Corpus Christi, and Richmond areas. Choices include plans with $0 premiums and attractive extra features, such as a dental allowance and hearing, vision, and fitness benefits.
This has closely followed CI’s expansion in Connecticut, offering $0 premium plans with attractive extra benefits in Litchfield and Middlesex counties. Medicare Advantage plans are popular with people who qualify for Medicare because they include benefits that Original Medicare does not. Hence, CI’s expansion of geographical reach bodes well for the company’s top line.
In the third quarter of the fiscal year ended September 30, 2022, CI’s adjusted revenues increased 2.4% year-over-year to $45.36 billion. During the same period, the shareholders’ net income increased 70.1% year-over-year to $2.76 billion. This translated to $8.97 per share, up 86.9% year-over-year.
Analysts expect CI’s revenue and EPS for the current fiscal to come in at $180.66 billion and $23.17, respectively, up 3.8% and 13.2% year-over-year, respectively. Both metrics are expected to keep increasing over the next two fiscals to $231.58 billion and $28.35, respectively. The company has also impressed by surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 2.4% over the past month and 43.9% over the past year to close the last trading session at $331.85.
CI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has a B grade for Value and Quality.
CI is ranked #5 among 11 stocks in the A-rated Medical – Health Insurance industry. Click here to see CI’s ratings for Growth, Momentum, Sentiment, and Stability.
WMT shares were trading at $142.59 per share on Thursday afternoon, up $1.30 (+0.92%). Year-to-date, WMT has gained 0.10%, versus a -17.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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