With the Fed signaling to continue raising interest rates throughout this year, the probability of the economy tipping into a recession is increasing. Amid the macroeconomic unrest, fundamentally sound large-cap stocks UnitedHealth Group (UNH), Walmart (WMT), and Eli Lilly (LLY) might be safe investments this year. Read on….
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Although the inflation showed signs of easing in October and November 2022, the Fed increased its benchmark interest rate to a range of 4.25% to 4.5% at its December meeting. Furthermore, policymakers anticipate that interest rates will stay high for longer and might reach 5.1% this year. However, the easing of inflation in December might make the Fed rethink its policy stance this year.
Investors are paying close attention to inflation since it impacts how far the central banks would go on their rate-hiking path. Rate increases have caused the economy to slow down, and how far the Fed chooses to go could determine whether or not there would be a recession.
Moreover, the World Bank reduced its forecast for global economic growth from 3% to 1.7% for 2023, citing worsening economic conditions. The adjustment resulted from a significant decline in the U.S. economy’s prospects, with the World Bank forecasting 0.5% growth, down from the earlier projection of 2.4%.
The World Bank stated, “Global growth has slowed to the extent that the global economy is perilously close to falling into recession.” It further contends that while global central banks’ measures to control inflation might have been important, they have significantly worsened the financial situation on a global scale.
Given the ongoing macroeconomic uncertainties, investing in shares of large-cap companies could be safe for investors as they are well-established firms with the capacity to withstand challenging economic periods. Hence, fundamentally sound large-cap stocks UnitedHealth Group Incorporated (UNH), Walmart Inc. (WMT), and Eli Lilly and Company (LLY) could be worthy buys this year.
UnitedHealth Group Incorporated (UNH)
With a market capitalization of $461.01 billion, UNH is a diversified healthcare corporation in the United States. It operates through UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx segments. The company offers consumer-oriented health benefit plans, software and information products, and pharmacy care services.
On January 10, 2023, Optum, a UNH subsidiary, and Owensboro Health established a partnership to improve patient care and experience. Beginning in April 2023, roughly 575 Owensboro Health members in revenue cycle and information technology services would join Optum as part of this new agreement.
The company should benefit from the reinvention of conventional healthcare models and systems, along with improved efficiency, as a result of this cooperation.
Also, on January 5, Optum and Northern Light Health announced their strategic partnership to improve the quality of medical care for patients and providers in Maine. Beginning in March 2023, about 1,400 Northern Light Health employees are expected to join Optum as employees, which could aid Optum in growing its business and enhancing its operational effectiveness.
For the third quarter of fiscal 2022, which ended September 30, 2022, UNH’s total revenues increased 11.8% year-over-year to $80.89 billion, and its earnings from operations grew 30.6% from the year-ago value to $7.46 billion. Adjusted net earnings attributable to UNH common shareholders rose 27.2% year-over-year to $5.49 billion, while its adjusted EPS came in at $5.79, up 28.1% year-over-year.
The company has increased its dividends for 13 consecutive years. It pays a $6.60 per share dividend annually, which translates to a 1.34% yield on the current price level. Moreover, UNH’s dividend payouts have grown at a 17.4% CAGR over the past five years.
For the fiscal year ended December 2022, analysts expect UNH’s revenue to increase 12.6% year-over-year to $323.93 billion. The company’s EPS for the same year is expected to grow 15.8% from the previous year to $22.03. Moreover, UNH surpassed its consensus EPS in all four trailing quarters, which is impressive.
Furthermore, analysts expect the company’s revenue and EPS for the current fiscal year (ending December 2023) to grow 10% and 13.3% year-over-year to $356.17 billion and $24.95, respectively.
Shares of UNH have gained 5.2% over the past year to close the last trading session at $493.40.
UNH’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Growth, Stability, Quality, and Sentiment. Within the Medical – Health Insurance industry, it is ranked #2 of 11 stocks.
Beyond what we stated above, we also have UNH’s ratings for Value and Momentum. Get all UNH ratings here.
Walmart Inc. (WMT)
WMT runs retail, wholesale, and other units globally and has a market capitalization of $394.08 billion. It has roughly 10,500 stores and various e-commerce websites in 24 countries under 46 banners. It operates through Walmart U.S.; Walmart International; and Sam’s Club segments.
On December 15, 2022, WMT announced that it would boost customer experience by investing in supply chains, logistics, and infrastructure. WMT Canada revealed its intentions to establish a pioneering distribution facility in Quebec.
Additionally, the company’s logistics and supply chain networks throughout the Southeast area are being strengthened in Mexico by the soon-to-open Villahermosa Perishables Distribution Center.
On October 27, WMT announced the expansion of its popular digital storefront, The Netflix Hub, across 2,400+ WMT stores, along with a new Netflix Streaming Gift Card available only at WMT. The company aims to strategically benefit from increased customer satisfaction and experience by offering exclusive experiences and fan-favorite products.
The company has raised its dividends for 49 consecutive years. It pays a $2.24 per share dividend annually, which translates to a 1.53% yield on prevailing prices. WMT’s dividend payouts have grown at a 1.9% CAGR over the past five years, and its four-year average dividend yield is 1.69%.
For the fiscal 2023 third quarter ended October 31, 2022, WMT’s total revenues grew 8.7% year-over-year to $152.81 billion. The company’s adjusted operating income rose 3.9% from the prior year’s quarter to $6.02 billion. As of October 31, 2022, WMT’s total current assets stood at $87.68 billion compared to $81.07 billion as of January 31, 2022.
The consensus revenue estimate of $619.77 billion for the fiscal year ending January 2024 indicates a 3% year-over-year improvement. The consensus revenue estimate of $6.58 for the next year reflects a rise of 8.4% from the prior year. Furthermore, WMT surpassed its consensus EPS in three of four trailing quarters.
The stock has gained 16.5% over the past six months to close the last trading session at $146.13.
WMT’s strong prospects are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
WMT has a Sentiment grade of A and a Stability grade of B. In the 39-stock A-rated Grocery/Big Box Retailers industry, it is ranked #10.
In addition to the POWR Ratings I’ve just highlighted, you can see WMT ratings for Growth, Value, Momentum, and Quality here.
Eli Lilly and Company (LLY)
LLY is a drug manufacturer. It discovers, develops, and sells products for the human pharmaceutical products market in 120 countries. It has a market capitalization of $342.45 billion. It serves wholesalers, managed care organizations, government and long-term care institutions, hospitals, and certain retail pharmacies.
On December 22, 2022, LLY and ProQR Therapeutics N.V. (PRQR) announced the expansion of their licensing and collaboration arrangement, focusing on the research, development, and commercialization of new genetic medicines.
With the use of ProQR’s Axiomer platform, LLY is expected to have access to more targets in the central nervous system and peripheral nervous system under the conditions of the expanded partnership. Moreover, the company would be able to exercise a $50 million payment to further the partnership’s growth.
Also, on December 1, LLY acquired Akouos, Inc. (AKUS). Through this acquisition, LLY intends to expand its efforts in genetic medicines to encompass the company’s portfolio of adeno-associated viral gene therapies to treat inner ear diseases such as sensorineural hearing loss.
On December 12, LLY announced a 15% increase in its quarterly dividend to $1.13 per share on outstanding common stock for the first quarter of 2023, payable on March 10, 2023. LLY pays a $4.52 per share dividend annually, which translates to a 1.25% yield on the current price level.
LLY’s dividend payments have grown at a 15% CAGR over the past three years. Moreover, the company has raised its dividends for eight consecutive years.
For the third quarter that ended September 30, 2022, LLY’s revenue increased 2.5% year-over-year to $6.94 billion, and its income before income taxes rose 25.7% from the prior year’s quarter to $1.57 billion. The company’s non-GAAP net income was $1.79 billion, up 10.8% year-over-year, while its non-GAAP EPS stood at $1.98, registering an 11.9% year-over-year increase.
Analysts expect LLY’s revenue to increase 6.6% year-over-year to $30.56 billion for the current fiscal year ending December 2023. Furthermore, the company’s EPS for the same year is expected to grow 6.4% from the previous year to $8.29. Shares of LLY have gained 8.9% over the past six months and 37.4% over the past year to close the last trading session at $360.41.
LLY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has a B grade for Stability and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #28 of 164 stocks.
To see additional POWR Ratings for Growth, Value, Sentiment, and Momentum for LLY, click here.
UNH shares were trading at $489.64 per share on Thursday morning, down $3.76 (-0.76%). Year-to-date, UNH has declined -7.65%, versus a 3.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal’s passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor’s degree in finance and is pursuing the CFA program.
She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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