3 Stocks to Buy as Repairing Hurricane Idalia’s Damage Begins

Posted on by The INO.com Team

On August 30, Hurricane Idalia made a devastating entrance on the coastline of Taylor County, Florida, near Keaton Beach. With sustained winds estimated at 125 mph, Idalia was classified as a Category 3 hurricane according to the Saffir-Simpson Hurricane Wind Scale. Hurricane Idalia traversed inland across the eastern expanse of Florida's Big Bend region, advancing toward South Central Georgia.

The coastal regions of Taylor and Dixie County experienced a surge in water levels, reaching an alarming peak of eight feet above the ground level and encroaching nearly one and a half miles inland.

Accompanied by fierce winds, the storm left the area littered with fallen trees, displaced power lines, and debris. Widespread power outages are reported. Also, in Florida’s Pasco County alone, approximately 4,000 to 6,000 homes were inundated.

Idalia Wreaked Havoc

Risk analytics company Verisk anticipates that the onshore property insured losses from Hurricane Idalia's carnage will fall within the daunting financial bracket of $2.5 billion to $4 billion.

Assessing the severity of claims linked to Idalia necessitates considering the implications of inflation and the lingering repercussions stemming from Hurricane Ian. Certain aspects of the damage, such as fallen trees, carry the potential for accruing significant costs associated with clean-up initiatives and roof replacement endeavors.

Fast-moving and rising coastal surges accounted for substantial damage to manufactured homes, a major constituent of the residential inventory within the Big Bend region. These homes experienced extensive roof losses, siding damages, and, in some instances, near-total destruction due to wind and surge, especially within coastal vicinities.

Residential homes built on slab foundations endured significant water-related damages affecting various building components and interior contents. Yet, elevated beachfront properties managed to hold up relatively well under the circumstances.

According to Moody’s, Idalia was the ninth named storm of the 2023 North Atlantic Hurricane Season. Idalia’s impact of damage and lost economic activity is expected to be between $12 billion and $20 billion.

While construction expenses have seen reductions from their peak levels in recent years, they are still leveled above their long-term averages. Moreover, Florida's stringent regulations stipulate that state-certified contractors must undertake roof repair operations.

Given the vastness of wind damage brought by the hurricane, there exists a potential for exacerbating Florida's already fragile labor situation, potentially leading to an unexpectedly protracted recovery phase.

Despite Hurricane Idalia not reaching the destructive intensity of Hurricane Ian, its raging floodwaters have unmoored boats in coastal neighborhoods. Many residents are now grappling with locating their displaced vessels and managing the damage wreaked by the storm.

Home improvement retailers are springing into action to support their Florida employees and customers affected by Hurricane Idalia.

Well-established retailer The Home Depot, Inc. (HD), as one such proactive response, has set up a command center to ensure uninterrupted communication between its merchandise and operations teams and its outlets and suppliers on the Gulf Coast and other areas struck by the storm.

Many staff from its merchandising, operations, and supply chain teams are busy ferrying truckloads of essential products, including generators, water, tarps, plywood, batteries, and flashlights, to their stores.

Likewise, Lowe's Companies, Inc. (LOW) is channeling its resources towards ensuring an adequate stock of storm-related products like generators and clean-up supplies at its stores. The company is diligently striving to provide relevant products where they are needed most, whether for wind-related or flood-related support.

To ensure this, LOW’s merchant associates are on the ground, pinpointing the most crucial products in specific areas. The company had taken the precautionary measure of stocking hurricane-related items at its distribution centers well before the onset of the hurricane season.

As Florida initiates restoration actions post-hurricane, home improvement retailers are projected to book sales. With a proven tendency for a rise in comparable store sales relative to the severity of such natural disasters, the industry has inevitably captured attention.

Given this backdrop, let’s turn our focus toward the fundamental analysis of three home improvement stocks that could be worth buying under the current circumstances:

The Home Depot, Inc. (HD)

HD, a pioneering force with over four decades of legacy in the retail home improvement sector, offers an unparalleled selection of lumber, building materials, and home improvement products. Their offerings, priced competitively, maintain a robust standing in the service-focused retail landscape.

The company's unwavering commitment to innovation and upgrading its product range, service proficiency, and sound financial performance bolsters its commanding market position.

Achieving international presence through strategic acquisitions, HD's sales outside the United States reached $3.73 billion for the quarter ending July 30, 2023, accounting for approximately 8.7% of its net quarterly sales.

HD’s revenue grew at 9.1% and 8.2% CAGRs over the past three and five years, respectively. Over the past three years, the company’s EBITDA and net income rose at CAGRs of 8.4% and 11.1%, respectively.

During the second quarter, the company opened two new stores in the U.S., bringing its total store count to 2,326 as of the end of the quarter. As of July 30, 2023, 317 stores, or 13.6% of HD's global network, were in Canada and Mexico. For the second quarter of fiscal 2023, sales per retail square foot were $684.65, and for the first six months of fiscal 2023, it was $638.50.

For the six months that ended July 30, 2023, HD’s net cash provided by operating activities stood at $12.21 billion, up 69.9% year-over-year, indicating that the core business activities are thriving. For the same period, the company returned approximately 11.4% of sales to shareholders in a mix of dividends and share buybacks, indicating reasonable sustainability.

HD continues to boost shareholder value, evidenced by a fresh authorization of a $15 billion share repurchase program and a dividend declaration of $2.09 per share for the second quarter, payable to shareholders on September 14. This marks the company's 146th consecutive quarter of dividend payment.

HD expresses optimism towards the medium-to-long-term outlook for the home improvement sector and remains confident about capturing a larger market share in an expansive yet fragmented market. For fiscal 2023, it projects an operating margin rate between 14.3% and 14%.

Changes have been observed concerning institutions' holdings of HD shares. Approximately 70.5% of HD shares are presently held by institutions. Of the 3,472 institutional holders, 1,546 have increased their positions in the stock. Moreover, 158 institutions have taken new positions (3,417,304 shares), reflecting confidence in the company’s trajectory.

Lowe's Companies, Inc. (LOW)

LOW is a prominent American retail company that operates a home improvement and appliance store chain.

Even though LOW is a non-pet retailer, it has recently announced an expansion of its commercial ties with Petco, bringing more veterinary care and pet supplies to almost 300 of its locations by the end of the year.

This strategic move comes in response to the upsurge in pet ownership since the onset of the COVID-19 pandemic, which led to a substantial increase in demand for pet products and veterinary services. Consequently, retailers are seizing this profitable opportunity by establishing their platforms as comprehensive shopping destinations for pet owners.

LOW’s revenue grew at 5.1% and 5.7% CAGRs over the past three and five years, respectively. Over the past three years, the company’s EBITDA and net income rose at CAGRs of 10.6% and 1.8%, respectively.

Maintaining a disciplined emphasis on its top-tier capital allocation strategy, LOW persists in creating sustained value for its shareholders. In the second quarter of 2023 alone, the company invested in a share buyback program, purchasing approximately 10.1 million shares at $2.2 billion. Additionally, they delivered $624 million in dividends.

Last month, the company declared a quarterly dividend of $1.10 per share, payable to the shareholders on November 8, 2023. Its annualized dividend of $4.40 per share translates to a 1.92% yield on the current share price. Its four-year average dividend yield is 1.62%. The company’s dividend payouts have grown at a CAGR of 24.5% over the past three years and 20% over the past five years.

For the second quarter that ended August 4, 2023, LOW posted better-than-expected results, surpassing the top and bottom-line estimates. Its net sales reached $24.96 billion, while net earnings stood at $2.67 billion. Its earnings per share came at $4.56.

LOW's chairman, president, and CEO, Marvin R. Ellison, said, “Our ability to reduce expenses while improving customer service is the result of excellent execution by our team, and we remain confident in the mid-to long-term outlook for the home improvement industry. In recognition of the contributions of our front-line associates, we are awarding over $100 million in discretionary and profit-sharing bonuses to them this quarter.”

For fiscal 2023, LOW expects revenues to be between $87 billion and $89 billion, while EPS is expected to come between $13.20 and $13.60.

Ownership data indicates institutional holders have a significant interest in LOW, accounting for approximately 74.9% of LOW shares. Of the 2,464 institutional holders, 1,013 have increased their positions in the stock. Moreover, 167 institutions have taken new positions (1,363,818 shares), reflecting confidence in the company’s trajectory.

Marine Products Corporation (MPX)

MPX, specializing in designing, manufacturing, and selling recreational fiberglass powerboats, offers clients a suite of products, including Chaparral sterndrive leisure boats, Chaparral outboard leisure boats, and Robalo outboard sports fishing vessels.

MPX’s revenue grew at 26.3% and 8.9% CAGRs over the past three and five years, respectively. Over the past three years, the company’s EBITDA and net income rose at CAGRs of 37.1% and 41.7%, respectively.

Leveraging a strong previous quarter's sales performance, MPX aims to harness this ongoing momentum throughout the year. As a long-term objective, the enterprise plans to diversify its product suite and enhance its dealership network.

MPX reported formidable sales of $116.16 million for the fiscal second quarter that ended June 30, 2023, marking a 21.2% year-over-year rise. The company's ability to ensure the delivery of completed boats to its network of 206 domestic and 92 international accredited independent dealerships assisted in satisfying its dealers' inventory needs during peak retail selling seasons.

The growth in net sales can be attributed to an 11% increase in the number of boats sold during the quarter, a 10% uptick in the average selling price per boat, and a surge in parts and accessories sales. An increase in unit sales within both the Chaparral and Robalo brands was observed.

Gross profits saw a jump of 24.6% from the prior-year quarter, amounting to $28.66 million, while net income stood at an impressive $14.32 million, a 43.9% year-over-year increase.

While international sales currently comprise approximately 7% of the company's sales demographic, growth is evident with a 4% year-on-year increase. The 92 non-U.S. dealerships form more than 30% of the company's total dealership count, signaling a substantial potential for further expansion in international markets.

As part of its steadfast dedication to providing shareholder returns, MPX recently declared a quarterly dividend of $0.14 per share, scheduled for payment on September 11. Its annualized dividend of $0.56 per share translates to a 4.04% yield on the current share price.

Its four-year average dividend yield is 3.82%. The company’s dividend payouts have grown at a CAGR of 11.9% over the past three years and 8.6% over the past five years.

Bottom Line

The global economy is straining under various interrelated challenges and crises as the world navigates a critical juncture. Current and impending climatic obstacles exacerbate the threats, further intensifying the strain on global stability.

Amid these turbulent times, there is a silver lining. The global home improvement services market signals a beacon of economic resilience. Experts anticipate robust growth in this sector, projecting it to achieve $423.90 billion by 2027, growing at a CAGR of over 5%. This market prompts an intriguing opportunity for investors.

Given the industry tailwinds, investors might consider turning to dividend-paying home improvement stocks with robust fundamentals and trading at attractive valuations that offer consistent returns and bolster portfolios during uncertain times.

CVS Health (CVS) Shakes up Pharma Market With Potential Biosimilar Game-Changer: Buy or Hold?

Posted on by The INO.com Team

Biosimilars have been gaining traction lately as healthcare costs continue to rise. Biosimilars are attractive for healthcare companies as they can vie for a more significant share of the pie, given the extensive market for critical life-saving drugs. Fortune Business Insights expects the U.S. biosimilars market size to grow at a CAGR of 40.2% to reach $100.75 billion by 2029.

CVS Health Corporation (CVS) has jumped on the biosimilar bandwagon by launching a wholly-owned subsidiary named Cordavis, which will work directly with manufacturers to commercialize and/or co-produce biosimilar products. A biosimilar is a biologic medication highly similar to a biologic medication already approved by the U.S. Food and Drug Administration (FDA) – the original biologic (also called the reference product).

Biosimilars are considered safe and effective as they are made from the same types of resources and do not have any meaningful differences from the reference product. Cordavis will not undertake any research and development of drugs. Cordavis has contracted with Novartis AG’s (NVS) Sandoz to commercialize and co-manufacture Hyrimoz, a biosimilar for Humira, during the first quarter of fiscal 2024, under a Cordavis private level.

The list price of this biosimilar to be brought by Cordavis will be more than 80% lower than the current list price of Humira. CVS’ CFO Shawn Guertin said, “Cordavis is a logical evolution for us and will help ensure sufficient supply of biosimilars in the U.S. and support this market now and in the future, while ultimately improving health outcomes and reducing costs for consumers.”

CVS’ Chief Pharmacy Officer and Co-President of the Pharmacy and Consumer Wellness segment, Prem Shah, said, “We have a strategy to go after the products where we believe we can create the most value for customers, and for the US marketplace where we can increase the competition, lower the cost, and get that cost to consumers, and get these products to consumers at lower prices.”

JPMorgan analyst Lisa Gill said the contract with Sandoz is a volume-based transaction with only upside for CVS. In a note, she stated, “CVS has committed to purchasing a certain amount of volume from Sandoz, and management noted there are no additional capital commitments. CVS anticipates Cordavis will generate positive margins for commercializing the product, but it is too early to size the potential contribution.”

With sales of Humira totaling more than $21 billion last year, CVS now can grab a slice of this enormous market for the expensive and vital drug.

Here’s what could influence CVS’ performance in the upcoming months:

Mixed Financials

CVS’ total revenues for the second quarter ended June 30, 2023, increased 10.3% year-over-year to $88.92 billion. For the six months ended June 30, 2023, its net cash provided by operating activities increased 48.2% over the prior-year quarter to $13.35 billion.

Its adjusted operating income declined 10.4% year-over-year to $4.48 billion. The company’s adjusted income attributable to CVS Health declined 14.7% year-over-year to $2.85 billion. Also, its adjusted EPS came in at $2.21, representing a decline of 12.6% year-over-year.

Mixed Analyst Estimates

Analysts expect CVS’ EPS for fiscal 2023 to decline 1.2% year-over-year to $8.59. Its fiscal 2023 revenue is expected to increase 8.9% year-over-year to $351.01 billion. Its EPS for fiscal 2024 is expected to increase 1.2% year-over-year to $8.69. On the other hand, its fiscal 2024 revenue is expected to decline 2% year-over-year to $344.07 billion.

Discounted Valuation

In terms of forward EV/Sales, CVS’ 0.43x is 87.8% lower than the 3.51x industry average. Its 7.54x forward EV/EBITDA is 42.3% lower than the 13.08x industry average. Likewise, its 8.57x forward EV/EBIT is 49.2% lower than the 16.86x industry average.

Mixed Profitability

In terms of the trailing-12-month levered FCF margin, CVS’ 5.33% is significantly higher than the 0.22% industry average. Likewise, its 1.41x trailing-12-month asset turnover ratio is 273.4% higher than the industry average of 0.38x. Furthermore, its 5.42% trailing-12-month EBITDA margin is 5.2% higher than the industry average of 5.15%.

On the other hand, CVS’ 0.84% trailing-12-month Capex/Sales is 81.4% lower than the 4.52% industry average. Likewise, its 15.64% trailing-12-month gross profit margin is 71.8% lower than the 55.53% industry average.

Bottom Line

CVS’ entry into the world of biosimilar products through its newly launched subsidiary Cordavis is expected to help the company boost its revenues and improve its profit margins. However, the company faces competition from other companies making a biosimilar of Humira.

Moreover, the company has yet to communicate what it intends to do after launching the Humira biosimilar during the first quarter of fiscal 2024. Until the company shares its plans, it could be risky to invest in the stock.

Given its mixed fundamentals and profitability, it could be wise to wait for a better entry into the stock.

Must-See Analysis: Is GameStop (GME) a Buy, Hold, or Sell Ahead of Earnings Unveiling?

Posted on by The INO.com Team

GameStop Corporation (GME), which primarily sells video games and gaming consoles, posted its fourth consecutive drop in quarterly revenue and missed analyst estimates for the first quarter of fiscal 2023 as consumers cut back on non-essential spending amid inflationary pressures and an uncertain economy.

The company reported first-quarter revenue of $1.24 billion, down nearly 10% year-over-year. Revenue missed analysts’ average estimate of 1.36 billion, according to Refinitiv. GME posted an adjusted loss of $0.14 per share, less than the expected loss of $0.17 per share.

The company is set to release its second quarter fiscal 2023 results on September 6, 2023, after the market’s closing. For GME to surpass Wall Street estimates, the company must report a lower-than-$0.14 per share loss or a year-over-year improvement of more than 60%.

Analysts expect the company’s revenue for the quarter to be $1.14 billion, up 0.5% year-over-year. The company failed to surpass the consensus revenue estimates in three of the trailing four quarters, which is disappointing.

The signature meme stock has been one of the most widely followed stocks on the market. The retailer has witnessed significant rallies in the past driven by retail investors’ interest, especially during the peak of the COVID-19 pandemic when the stock market was in the grip of meme mania.
However, this year, the stock has not performed as investors hoped it would. Shares of GME have plunged nearly 15% over the past month and more than 30% over the past year. But the stock has gained close to 7% year-to-date.

GME’s shares were boosted, with newly appointed executive chairman Ryan Cohen raising his ownership stake through his RC Ventures company. According to an SEC filing, the transaction happened on June 9, with Cohen paying $10 million for 443,842 GameStop shares. Cohen owns 36,847,842 shares of GME in total.
Here are the factors that could affect GME’s performance in the upcoming months:

Mixed Financials

For the first quarter that ended October 29, 2022, GME’s net sales decreased 10.3% year-over-year to $1.24 billion, and its gross profit came in at $287.30 million, down 3.8% year-over-year. Also, the company’s adjusted operating loss was $51.20 million for the quarter.
In addition, GME’s adjusted EBITDA loss stood at $29.40 million. The company reported an adjusted net loss and adjusted loss per share of $42.30 million and $0.14, respectively.

However, the company’s cost-cutting measures showed signs of working as its selling, general and administrative (SG&A) expenses reduced to $345.70 million, compared to $452.20 million in the previous year’s first quarter. Moreover, its cash and cash equivalents came in at $1.06 billion as of April 29, 2023, versus 1.04 billion as of April 30, 2022.

Major Executive Shake-Up

After reporting a decline in revenue and a narrowed loss in its first quarter, the company announced the leadership shake-up, terminating CEO Matt Furlong in June after serving GameStop for the past two years. The retailer also said that Ryan Cohen will see his role at GME change from chairman to executive chairman.

As executive chairman, he will be tasked with “capital allocation, evaluating potential investments and acquisitions, and overseeing the managers of the Company’s holdings,” according to the SEC filing.

Further, GameStop’s CFO Diana Saadeh-Jajeh, who resigned on August 11 after serving for about a year, marks the second high-profile exit in two months.

Crypto Wallet Take-Down

GME, once a giant among video game retailers, has witnessed its star fade for more than a decade. The struggling retailer hoped a bet on crypto would partially reverse its fall, launching a digital asset wallet in May 2022 that allows games and others to store, send, receive, and use cryptos and non-fungible tokens (NFTs) across decentralized apps within having to leave their web browsers.

However, last month, the company announced discontinuing its crypto wallets “due to the regulatory uncertainty of the crypto space.” The retailer will remove its wallets, which operate through iOS and Chrome extensions, from the market on November 1, 2023.

Mixed Historical Growth

Over the past three years, GME’s revenue declined at a CAGR of 0.9%. Its tangible book value increased at a CAGR of 43% over the same period. Also, the company’s total assets and levered free cash flow grew at 7.5% and 38.8% CAGRs over the same time frame, respectively.

Unfavorable Analyst Estimates

Analysts expect GME’s revenue to decline 3.7% year-over-year to $5.71 billion for the fiscal year ending January 2024. The company’s EPS is expected to remain negative for at least two fiscal years.

For the fiscal year 2025, analysts expect GME’s revenue to decrease 3% from the previous year to $5.53 billion.

Bottom Line

During the first quarter of 2023, GameStop witnessed a revenue drop and incurred losses due to the disappointing performance of new game releases. However, the company’s cost-cutting strategy resulted in lower expenses and improved cash.

While there could be a slight increase in net sales during the second quarter, and its loss might be narrowed, GME’s prospects look challenging.
Even though the company continues its transition from brick-and-mortar to a digital focus, there are no signs of meaningful improvement, with the primary reason being a weakness in its core business of trading physical video games, which has suffered a significant decline due to the gaming industry’s digitalization.

Also, GME’s hopes for cryptocurrencies to boost its financial position have been dashed since the company decided to discontinue its crypto wallet, citing regulatory uncertainty in the crypto space.

Meanwhile, investors could keep a close eye on GME’s expenses, reflecting the effectiveness of its cost-cutting strategy and the company’s growth as chairman Ryan Cohen temporarily stepped into the CEO role, reaffirming his commitment to GameStop’s long-term success.
Given GME’s relatively bleak financial performance and an uncertain near-term outlook, it could be wise to avoid this stock until its upcoming earnings release.

5 Stocks to Buy Now in Response to Rising Unemployment Rate

Posted on by The INO.com Team

The recently released August jobs report signaled a cooling down of the robust U.S. job market. With the strong job growth since last year acting as an Achilles heel for the Fed, the benchmark interest rate was raised several times to control inflation.

Although nonfarm payrolls beat estimates of 170,000 to arrive at 187,000 in August, the unemployment rate was 3.8%, rising sequentially to the highest since February 2022. Moreover, the real unemployment rate peaked at 7.1%, increasing by 0.4% and marking the highest since May 2022. Furthermore, the nonfarm payrolls for June and July were revised considerably downward.

The healthcare sector showed the most significant job gain, adding 71,000 jobs. The latest Job Opening and Labor Turnover Survey (JOLTS) report released last week showed that job openings fell to their lowest since March 2021, indicating softness in the labor market. The JOLTS report showed that there were 8.82 million jobs open at the end of July, a decline from the 9.16 million job openings in June.

Wells Fargo Economics senior economist Sarah House said, “Job openings per unemployed person remain above pre-pandemic levels, but this indicator is clearly on a downward trajectory amid cooling labor demand growth and impressive labor supply growth. A normalizing quit rate suggests that the fight over workers is subsiding, at least at the aggregate level.”

The Bureau of Economic Analysis (BEA) revealed that the real gross domestic product (GDP) rose at an annual rate of 2.1% in the second quarter. The latest estimate was lower than the initial advance estimate of a 2.4% growth.

Wells Fargo economist Shannon Seery said, “Overall, there were not any major revisions to the underlying GDP components compared to the first estimate of output, and today’s data do not materially change our overall view of the economy. Incoming data for Q3 show an economy that has continued to expand but with signs of some moderation. We continue to expect the economy to gradually slow during the second half of the year.”

Amid the rise in unemployment and an expected economic slowdown during the second half of the year, investors could consider investing in the healthcare sector as it is relatively stable compared to other sectors. The sector's inelastic demand enables companies in this space to maintain their profit margins irrespective of economic cycles.

Considering these factors, fundamentally strong healthcare stocks Eli Lilly and Company (LLY), Johnson & Johnson (JNJ), Merck & Co., Inc. (MRK), Pfizer Inc. (PFE), and Amgen Inc. (AMGN) could be solid portfolio additions now.

Let’s discuss the fundamentals of these stocks.

Eli Lilly and Company (LLY)

LLY discovers, develops, and markets human pharmaceuticals worldwide. It offers Basaglar, Humalog, Humalog Mix 75/25, Humalog U-200, Humalog Mix 50/50, insulin Iispro, insulin Iispro protamine, insulin Iispro mix 75/25, Humulin, Humulin 70/30, Humulin N, Humulin R, and Humulin U-500 for diabetes; and Jardiance, Trajenta, and Trulicity for type 2 diabetes.

On August 14, 2023, LLY announced the acquisition of Versanis Bio. The acquisition will expand LLY’s portfolio to include Versanis’ lead asset, bimagrumab, which is undergoing a Phase 2b study alone and in combination with semaglutide in adults living with overweight or obesity.

Ruth Gimeno, Ph.D., group vice president diabetes, obesity, and cardiometabolic research at LLY, said, “Combining our current incretin portfolio, including tirzepatide, with activin receptor blockers such as bimagrumab, could be the next major step in innovative treatments for those living with cardiometabolic diseases, like obesity.”

“The wealth of knowledge that our new colleagues from Versanis will bring to Lilly will propel our research and development efforts forward, ultimately benefiting patients around the world,” she added.

In terms of the trailing-12-month EBITDA margin, LLY’s 33.08% is 532.9% higher than the 5.23% industry average. Likewise, its 17.13% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.22%. Furthermore, its 8.55% trailing-12-month Capex/Sales is 89.4% higher than the 4.52% industry average.

LLY’s revenue for the second quarter ended June 30, 2023, increased 28% year-over-year to $8.31 billion. The company’s non-GAAP gross margin increased 28% year-over-year to $6.63 billion. Its non-GAAP net income rose 68.3% over the prior-year quarter to $1.90 billion. Also, its non-GAAP EPS came in at $2.11, representing an increase of 68.8% year-over-year.

Analysts expect LLY’s EPS and revenue to increase 47% and 27.1% year-over-year to $2.91 and $8.82 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 80.2%.

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates under three segments: Consumer Health, Pharmaceutical, and MedTech.

On August 10, 2023, JNJ’s The Janssen Pharmaceutical Companies announced that the U.S. FDA had granted accelerated approval of TALVEY (talquetamab-tgvs), a first-in-class bispecific antibody for the treatment of adult patients with relapsed or refractory multiple myeloma who have received at least four prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 antibody.

In terms of trailing-12-month gross profit margin, JNJ’s 67.50% is 21.7% higher than the 55.44% industry average. Likewise, its 0.53x trailing-12-month asset turnover ratio is 41.1% higher than the industry average of 0.38x. Furthermore, the stock’s 21.99% trailing-12-month levered FCF margin is significantly higher than the 0.22% industry average.

For the second quarter ended June 30, 2023, JNJ’s reported sales rose 6.3% year-over-year to $25.53 billion. Its gross profit rose 7.6% year-over-year to $17.32 billion. The company’s adjusted net earnings increased 6.5% over the prior-year quarter to $7.36 billion. In addition, its adjusted EPS came in at $2.80, representing an increase of 8.1% year-over-year.

Street expects JNJ’s EPS for the quarter ending December 31, 2023, to increase 8.6% year-over-year to $2.55. Its fiscal 2024 revenue is expected to increase 3.8% year-over-year to $87.79 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 5.2%.

Merck & Co., Inc. (MRK)

MRK is a global healthcare company that offers solutions through its prescription medicines, vaccines, biologic therapies, and animal health products. The company operates in the Pharmaceutical and Animal Health segments.

On June 16, 2023, MRK announced the completion of the acquisition of Prometheus Biosciences (RXDX). MRK’s Chairman and CEO Robert M. Davis said, “The Prometheus acquisition accelerates our growing presence in immunology, augments our diverse pipeline, and increases our ability to deliver patient value. This transaction is another example of Merck acting strategically and decisively when science and value align.”

In terms of trailing-12-month gross profit margin, MRK’s 73.22% is 32.1% higher than the 55.44% industry average. Likewise, the stock’s 7.28% trailing-12-month Capex/Sales is 61.3% higher than the 4.52% industry average. Furthermore, its 0.55x trailing-12-month asset turnover ratio is 46.9% higher than the industry average of 0.38x.

MRK’s sales for the second quarter ended June 30, 2023, increased 3% year-over-year to $15.04 billion. Its non-GAAP net loss that excludes certain items came in at $5.22 billion, compared to a non-GAAP net income of $4.74 billion in the year-ago quarter. Also, its non-GAAP loss per share came in at $2.06, compared to a non-GAAP EPS of $1.87 in the prior-year quarter.

For the quarter ending September 30, 2023, MRK’s EPS and revenue are expected to increase 4.7% and 1.8% year-over-year to $1.94 and $15.22 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 26%.

Pfizer Inc. (PFE)

PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic and women's health, biosimilars, sterile injectable and anti-infective medicines, and oral COVID-19 treatment.

On August 21, 2023, PFE announced that the U.S. FDA approved ABRYSVO (Respiratory Syncytial Virus Vaccine), its bivalent RSV prefusion F (RSVpreF) vaccine, for the prevention of LRTD and severe LRTD caused by RSV in infants from birth up to six months of age by active immunization of pregnant individuals at 32 through 36 weeks gestational age.

PFE’s 32.53% trailing-12-month EBIT margin is significantly higher than the 0.15% industry average. Its 69.82% trailing-12-month gross profit margin is 25.9% higher than the industry average of 55.44%. Furthermore, the stock’s 15.85% trailing-12-month levered FCF margin is considerably higher than the industry average of 0.22%.  

PFE’s revenues for the second quarter ended June 30, 2023, declined 54% year-over-year to $12.73 billion. The company’s adjusted income decreased 67.1% year-over-year to $3.84 billion. Its adjusted EPS came in at $0.67, representing a decline of 67.2% over the prior-year quarter.  

PFE’s EPS and revenue for fiscal 2024 are expected to increase 3.9% and 0.1% year-over-year to $3.43 and $66.54 billion, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 0.5%.  

Amgen Inc. (AMGN)

AMGN discovers, develops, manufactures, and delivers human therapeutics worldwide. It focuses on inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology, and neuroscience.  

On September 1, 2023, AMGN and Horizon Therapeutics Public Limited Company (HZNP) announced the entry into a consent order agreement with the Federal Trade Commission (FTC), helping resolve the pending FTC administrative lawsuit. This effectively clears AMGN’s path to close the acquisition of HZNP.

With the consent order agreement, AMGN and HZNP expect that the parties will jointly file stipulated proposed orders to dismiss the preliminary injunction motion and dissolve the temporary restraining order in the U.S. District Court for the North District of Illinois. Both companies will seek the final approvals required under Irish law to close the acquisition.

In terms of the trailing-12-month gross profit margin, AMGN’s 74.29% is 34% higher than the 55.44% industry average. Likewise, its 37.82% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.22%. Furthermore, its 51.78% trailing-12-month EBITDA margin is 890.5% higher than the 5.23% industry average.

For the fiscal second quarter ended June 30, 2023, AMGN’s total revenues increased 5.9% year-over-year to $6.99 billion. Its non-GAAP operating income rose 5.4% over the prior-year quarter to $3.52 billion. The company’s non-GAAP net income increased 7.5% year-over-year to $2.68 billion. Also, its non-GAAP EPS came in at $5, representing an increase of 7.5% year-over-year.

Street expects AMGN’s revenue for the quarter ending September 30, 2023, to increase 4% year-over-year to $6.92 billion. Its EPS for the quarter ending December 31, 2023, is expected to increase 15% year-over-year to $4.70. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 19.8%.

3 Stocks to Fall Into as 10-Year Treasury ‘Screams Buy’

Posted on by The INO.com Team

is prudent to explore why UnitedHealth Group Incorporated (UNH), Costco Wholesale Corporation (COST), and NextEra Energy, Inc. (NEE) could be wise portfolio additions now. Read on…

 

The 10-year Treasury yield surpassed 4.2%, and just a few weeks earlier, it hit its highest level since 2008, indicating investors are delaying their expectations regarding potential interest rate cuts by the Fed.

BMO Capital Markets head of U.S. rates strategy Ian Lyngen regards this uptick as a compelling opportunity for investors. In his view, the 10-year Treasury bond is a "screaming buy" for investors, owing to the Fed's successful endeavors in combating inflation.

Treasury yields and the stock market traditionally display an inverse relation. Still, defensive stocks, such as healthcare, utilities, and consumer staples, defined by their necessity, remain resilient. These sectors tend to preserve their revenue streams and overall stability, notwithstanding the volatility of the market conditions.

Before delving into the fundamentals of the stocks that could be solid buys now, it is crucial to understand the larger economic forces at play.

Why 10-Year Treasury Yield Is Rising

The Federal Reserve has implemented an 11th benchmark rate increase, announcing a 25-basis-point rise in July, escalating the interest rates to a 22-year high of 5.25% to 5.5%. Despite inflation notably declining from a 9.1% peak in June 2022 to 3.2% in July 2023, it still remains above the Fed’s 2% target.

In job market, the U.S. Bureau of Labor Statistics reported an increase in August's unemployment rate to 3.8%, up from July's 3.5% and reaching the highest since February 2022. Despite this, positive signals came from average hourly earnings, which showed a 0.2% increase for the month and a year-over-year increase of 4.3%. Furthermore, the U.S. economy outstripped forecasts with 187,000 new jobs.

In addition, American consumer spending showcased resilience, with sales at U.S. retailers picking up 0.7% month-over-month in July. Retail sales grew 3.2% year-over-year. Private consumption, which makes up nearly 70% of the U.S. GDP, remains strong, bolstered by sustained low unemployment and solid wage growth.

Some analysts had mooted that the Fed's rate hike spree might end. However, recent robust economic data have cast doubt on these assumptions, and uncertainty about its future monetary policy continues. Officials expressed concern in minutes from the Fed's July meeting that further rate increases could be a necessity due to the potential for persistent price rises.

As is generally understood, bond yields and bond prices follow an inverse relationship. Therefore, as interest rates increase, current bond prices tend to fall, consequently raising yields.

Respected market analyst Ed Yardeni predicts the 10-year Treasury yield could further escalate, spurred by increasing anxieties over the U.S. debt levels. He speculates that this yield could exceed 4.5% this year, potentially triggering a sell-off in the S&P 500 of up to 10%.

Why Are Treasury Securities Screaming Buys Now?

The government backs Treasury securities. Historically, the U.S. has always paid its debts, which helps to ensure that Treasurys are the lowest-risk investments one can own. 10-year Treasury bonds make interest payments every six months.

The market for U.S. Treasurys is the largest, most liquid market in the world, making them easy to sell if one needs access to their cash before the maturity date.

Chase Lawson, author of ‘Financial Freedom: Breaking the Chains to Independence and Creating Massive Wealth,’ believes that there’s consistent income potential with Treasury bonds, and one’s investment likely would not decline if the stock market tanks, like other investment vehicles, can do.

Since interest rates could remain high for a while, the 10-year treasury yield is anticipated to maintain momentum.

Stocks That Could Perform Well Even When Treasury Yields Are Rising…

High bond yields might potentially signal warning signs for stocks. Bonds compete for the same investor dollars as equities, and when yields surge, equities often go down. This trend arises because bonds, especially those with higher yields than stocks, usually become more attractive. Furthermore, while stocks carry inherent risk, bonds offer a safer option.

When the 10-year Treasury bond yield is strong, investing in stocks less influenced by interest rates is typically wise. Enterprises involved in utilities, consumer staples, and healthcare sectors tend to present stable earnings and cash flows and are less vulnerable to interest rate fluctuations.

Defensive stocks provide stable earnings and consistent returns, even amid an economic downturn. These stocks are nearly always in demand because they provide essential products and services.

Below, we look into the fundamentals of three stocks worth considering under current market conditions:

UnitedHealth Group Incorporated (UNH)

The U.S. ranks among the nations with the highest healthcare expenses globally. Compounded by the fact that these costs are increasing at a rate that exceeds inflation, health insurance has transitioned from an optional safeguard to a fundamental necessity.

With a robust market capitalization of $443.40 billion, the Minnesota-based health insurer UNH operates through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx.

The corporation reigns as the largest healthcare company in the United States, eclipsing even the biggest banks in the country. Its substantial stature is deemed a bellwether within the extensive health insurance sector. The company's robust performance stems from the contributions of two major business units, UnitedHealthcare and Optum.

These entities continually endeavor to deliver patient-centric healthcare services at reasonable prices across numerous American communities and follow a strategic alliance with reputable care systems.

UNH recently announced a dividend payout of $1.88 per share, payable on September 19, maintaining its commitment to stockholder returns.

UNH’s revenue grew at 12% and 10.3% CAGRs over the past three and five years, respectively. The company’s EBITDA and net income rose at CAGRs of 7.9% and 7.3%, respectively.

For the second quarter that ended June 30, 2023, the healthcare giant saw $92.90 billion in revenue, a 15.6% surge. This escalation was chiefly driven by double-digit expansions within its insurance division and Optum Health Services wing. Its earnings from operations rose 13% from the year-ago value to $8.06 billion.

Moreover, adjusted net earnings attributable to UNH common shareholders grew 9.1% year-over-year to $5.77 billion, whereas adjusted EPS increased 10.2% from the prior year’s quarter to $6.14, topping analyst expectations of $5.99.

Year-to-date, the total number of people served by UnitedHealthcare with medical benefits has increased by over 1.1 million. Growth across the company’s commercial benefit offerings indicated the corporation's emphasis on innovative and reasonably priced benefit plans.

Meanwhile, the number of people catered to by the company's senior and community offerings grew by 625,000 due to product and benefit customizations to meet the unique needs of the aging population and economically disadvantaged individuals.

UNH’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently changed their UNH stock holdings.

Institutions hold roughly 87.3% of UNH shares. Of the 3,307 institutional holders, 1,623 have increased their positions in the stock. Moreover, 155 institutions have taken new positions (1,445,591 shares).

Costco Wholesale Corporation (COST)

With a market cap of $241.18 billion, COST, the prominent warehouse club operator, continues to exhibit strong performance driven by strategic growth plans, optimized pricing policies, and substantial membership trends. These elements have been instrumental in bolstering the solid sales figures for the company.

COST’s revenue grew at 13.5% and 11% CAGRs over the past three and five years, respectively. The company’s EBITDA and net income rose at CAGRs of 15.8% and 17.4%, respectively.

Sales momentum continued through August, with net sales showcasing a 5% year-over-year increase to $18.42 billion for the retail month, an impressive follow-up to the 4.5% enhancement witnessed in July.

As the U.S. observed Labor Day, budget-minded shoppers looked forward to making the most of the annual sales. COST had put forth Labor Day promotions on an array of products, a move likely to boost the company’s sales figures further.

COST's business model of leveraging economies of scale and maintaining low-profit margins creates a virtuous cycle that perpetuates customer loyalty and fosters a competitive edge. This deliberate choice of prioritizing customer satisfaction over immediate profits has proven fruitful, significantly contributing to customer retention and repeat business–crucial elements in today’s highly competitive retail industry.

The catalysts driving COST's growth include its ongoing global expansion and remarkable renewal rates. The company continues to amplify shareholder value with shareholder-friendly management, reliable dividend payouts, and efficient capital reinvestments.

Its unique membership business model and pricing power distinguish it from its traditional counterparts. As of the third quarter of 2023, it revealed an encouraging 92.6% renewal rate within the U.S. and Canada, which testifies to robust customer loyalty levels and satisfaction.

The impressive renewal rate guarantees consistent revenue flow from membership fees, increases customer lifetime value, and enhances overall profitability. As the quarter concluded, COST reported having 69.1 million paid household members and 124.7 million cardholders.

Changes have been observed concerning institutions' holdings of COST shares. Approximately 68.1% of COST shares are presently held by institutions. Of the 3,168 institutional holders, 1,456 have increased their positions in the stock. Moreover, 212 institutions have taken new positions (1,307,195 shares), reflecting confidence in the company’s trajectory.

NextEra Energy, Inc. (NEE)

With a market cap of $135.33 billion, NEE stands as a leading utilities provider in the industry. The company focuses on generating renewable, clean, and sustainable power, serving millions of customers across North America.

Highlighted by its robust historical performance, NEE has presented a compelling case for investor interest with consistent, long-term dividend growth that offers shareholders stability and income. Particularly noteworthy is the company's anticipation to increase its dividend per share by approximately 10% annually through 2024, based on dividends from 2022. This strategy confirms confidence in potential cash-flow growth that supports these higher dividends.

NEE's impressive financial figures testify to its efficient management and ability to maintain regular profit generation even in a highly competitive sector. The growing earnings base allows it to return significant cash to its shareholders.

NEE’s revenue grew at 13.5% and 11% CAGRs over the past three and five years, respectively. The company’s EBITDA and net income rose at CAGRs of 15.8% and 17.4%, respectively.

For the fiscal second quarter that ended June 30, 2023, the company’s operating revenues stood at $7.35 billion for the quarter, up 41.8% year-over-year, exceeding analyst projections. Its adjusted earnings per share stood at $0.88, up 8.6% year-over-year.

NEE's long-term financial expectations remain unchanged. For 2023 and 2024, it expects adjusted EPS to be in the ranges of $2.98 to $3.13 and $3.23 to $3.43, respectively. For 2025 and 2026, adjusted EPS is expected to come between $3.45 to $3.70 and $3.63 to $4.00, respectively.

As a result of its dedication to environmental sustainability and consistent shareholder value creation, NEE has captured the attention of investors and market analysts. Ownership data indicates institutional holders have a significant interest in NEE, accounting for approximately 77.7% of NEE shares. Of the 2,557 institutional holders, 1,206 have increased their positions in the stock. Moreover, 134 institutions have taken new positions (5,266,359 shares), reflecting confidence in the company’s trajectory.

Conclusion

In conclusion, the U.S. stock market seems to have a strong foundation of sturdy economic growth and investor credibility in defensive equities, particularly those offering dividends, as a safeguard against inflation. Even though rising bond yields could potentially destabilize specific sectors, stocks less sensitive to interest rate variations and displaying consistent earnings and cash flow are optimally positioned to yield substantial returns.