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.

6 Stocks to Invest in if There’s Another Rate Hike

Posted on by The INO.com Team

Today, on August 31, the initial jobless claims for the week ending August 26 came in at 228,000, below market expectations of 235,000, thereby registering its lowest reading in four weeks.

This has followed further signs of economic slowdown in the form of JOLTS, which showed an unexpected drop in job openings to below 9 million for the first time since March 2021, the latest consumer confidence index, which came in at 106.1, lower than the previous Dow Jones estimate of 116 which was lower-than-expected addition of 177,000 jobs in August according to private payroll data from ADP, and a downward revision in the GDP growth rate for the second quarter.

However, such disappointing updates have been welcomed by market participants spooked by Fed chair Jerome Powell’s message at Jackson Hole in Wyoming on Friday, August 25.

While it was not as brief as last year’s, it was still equally unambiguous. 2% still remains the non-negotiable target for the inflation rate, and the Central Bank is prepared to raise policy rates further if required and hold them higher for longer until it is confident of sustained price stability.

While the 12-month PCE has since declined to 3% percent as of July from its peak of 7% in June 2022 due to a significant unwinding of the demand-supply imbalance, however, the core PCE, which excludes volatile food and energy prices and includes inflation for goods, housing services, and all other services, came in at 4.3% in July, indicating that there is significantly more ground left to cover through monetary policy tightening.

In such a scenario, despite increased optimism, businesses are expected to remain weighed down by high borrowing costs, and economic activity is expected to remain stifled due to relatively scarce credit.

Moreover, with every increase in benchmark interest rates, a selloff of long-duration fixed-income instruments, such as the 10-year treasury notes, gets triggered, which causes a slump in their market value and a consequent increase in their yields. This also increases the benchmark 30-year mortgage rates, thereby depressing demand and deepening the crisis in which real estate has lately been finding itself.

An increase in borrowing costs would not just raise the cost of servicing the $32.7 trillion national debt; significant markdowns and prices of legacy bonds could crush the loan portfolios of banks that could share the same fate as the Silicon Valley Bank and the First Republic Bank. In this context, S&P's move to downgrade multiple U.S. banks citing ‘tough’ operating conditions hardly comes as a surprise.

Speaking of banks, the Bank of Japan’s policy tweak loosened its yield curve control, sparking widespread shock in the markets. To compound the miseries further, after placing the country on negative watch amid the debt-ceiling standoff at Capitol Hill back in May, Fitch Ratings recently downgraded U.S. long-term rating to AA+ from AAA, citing the erosion of confidence in fiscal management.

While broad expectations are pricing in a rate hike in November after a pause in September’s FOMC meeting, being diligent investors confident enough to increase their stakes in fundamentally strong businesses could be a time-tested method to navigate potential turbulence ahead.
Here are a few which could be worthy of consideration:

Amazon.com, Inc. (AMZN)

The global retail giant provides its consumers a wide range of products and services through its online platform and offline supply chains. In addition to reselling merchandise and content offered by third-party resellers, the company also manufactures electronic devices to distribute its service. It operates through three segments: North America, International, and Amazon Web Services (AWS).

The AWS segment consists of global sales of computing, storage, databases, and other services for start-ups, enterprises, government agencies, and academic institutions. Recently, at the AWS Summit in New York, San Francisco-based cloud communication and customer engagement platform Twilio Inc. (TWLO)announced its strategic partnership with the company.

The renewal of vows and strengthening of ties, which seeks to enhance the company’s predictive AI proficiency, has closely followed a vote of confidence from the tech giant in which AMZN announced that it has acquired 1% stake in TWLO earlier in the week with its ownership of 1.77 million shares worth more than $108 million.

During the fiscal 2023 second quarter that ended June 30, AMZN’s net sales increased 11% to $134.4 billion, while its operating income more than doubled to $7.7 billion. Consequently, the behemoth’s net income came in at $6.7 billion, or $0.65 per share, compared to a net loss of $2 billion, or $0.20 per share, during the previous quarter.

Exxon Mobil Corporation (XOM)

XOM is engaged in the energy business through exploration for and production of crude oil and natural gas and the manufacture, trade, transport, and sale of crude oil, natural gas, petroleum products, petrochemicals, and a range of specialty products. The company’s segments include Upstream; Downstream; and Chemicals.

Over the past three years, XOM’s revenue has grown at a 19.8% CAGR. Over the same time horizon, the company’s EBITDA and net income have grown at 50.8% and 93.2% CAGRs, respectively.

On July 13, XOM announced the acquisition of Denbury Inc. (DEN), an experienced developer of carbon capture, utilization, and storage (CCS) solutions and enhanced oil recovery. The acquisition is an all-stock transaction valued at $4.9 billion, or $89.45 per share, based on XOM’s closing price on July 12, 2023.

During the fiscal 2023 second quarter that ended June 30, XOM’s total revenue and other income came in at $82.91 billion. During the same period, the net income attributable to it came in at $7.88 billion, or $1.94 per share.

T-Mobile US, Inc. (TMUS)

Through its flagship brands, T-Mobile and Metro by T-Mobile, TMUS provides mobile communication services in the United States, Puerto Rico, and the United States Virgin Islands.

Over the past three years, TMUS’ revenue has grown at almost 15% CAGR. During the same time horizon, its EBITDA and net income have grown at 19.4% and 31.8% CAGRs, respectively.

On the 5G front, on August 15, TMUS expanded its coverage in Pennsylvania, while on August 17, the company expanded its REVVL lineup with its first-ever tablet and new 5G smartphones.

For the fiscal 2023 second quarter, TMUS’ and postpaid service revenues registered industry-leading growth rates of 2.8% and 5.5%, to come in at $15.7 billion and $12.1 billion, respectively. The company’s adjusted EBITDA increased by 5.7% year-over-year to $7.20 billion during the same period.
Consequently, its net income for the quarter came in at $2.22 billion, or $1.86 per share. With the expectation of adding a net 5.6 to 5.9 million customers compared to the earlier estimate of 5.3 million to 5.7 million, TMUS has revised its core adjusted EBITDA guidance upwards to a range between $28,900 and $29,200.

The Progressive Corporation (PGR)

As an insurance holding company, PGR operates throughout the U.S. through three segments: Personal Lines; Commercial Lines; and Property. The company’s non-insurance subsidiaries generally support its insurance and investment operations.

Over the past three years, PGR’s revenue and total assets have grown at 11.3% and 11.8% CAGRs, respectively. For the fiscal 2023 second quarter that ended June 30, PGR’s total revenue increased by 33.3% year-over-year to $15.35 billion. During the same period, the net income available to common shareholders came in at $335.9 million, or $0.57 per share, compared to the net loss of $549.6 million, or $0.94 per share.

Albemarle Corporation (ALB)

As a global developer, manufacturer, and marketer of specialty chemicals, ALB operates through three segments: Energy Storage, Specialties, and Ketjen.
Given the ALB’s burgeoning lithium mining operations in Latin America coinciding with the exponential increase in demand and price of white gold driven by the imperative of energy transition, the company’s revenue has ballooned at 42% CAGR over the past three years. During the same time horizon, its EBITDA and net income have increased at 61.5% and 107.5% CAGRs, respectively.

On July 19, ALB announced that it had agreed to amend the transaction terms signed earlier this year with Mineral Resources Limited (MALRF). Pending regulatory approvals, under the new agreement, ALB will take 100% ownership of the Kemerton lithium hydroxide processing facility in Australia that is currently jointly owned with MALRF through the MARBL joint venture. ALB will also retain full ownership of its Qinzhou and Meishan lithium processing facilities in China.

The amendment is expected to simplify commercial arrangements further and provide greater strategic opportunities for each company based on its global operations and the evolving lithium market.

On July 18, ALB announced its quarterly dividend of $0.40 per share, payable October 2, 2023, to shareholders of record at the close of business as of September 15, 2023. ALB currently pays $1.60 annually as dividends and has been able to increase its payouts for the past 28 years.

For the fiscal 2023 second quarter that ended June 30, ALB’s net sales increased by 60.2% year-over-year to $2.37 billion, while its adjusted EBITDA increased by 69.2% year-over-year to $1.03 billion. Consequently, the net income attributable to ALB increased by 59.8% year-over-year to $650 million, while its adjusted EPS increased by 112.5% year-over-year to $7.33.

Given the stellar performance, ALB raised its revenue and EPS guidance for the fiscal year to $10.4 - $11.5 billion and $25.00 - $29.50, in line with the current analyst estimates.

Coterra Energy Inc. (CTRA)

As an independent oil and gas company, CTRA is involved in developing, exploring, and producing oil, natural gas, and natural gas liquids (NGLs). The company’s operations are primarily concentrated in three areas: the Permian Basin in west Texas and southern New Mexico; the Marcellus Shale in northeast Pennsylvania; and the Anadarko Basin in the Mid-Continent region in Oklahoma.

Over the past three years, CTRA’s revenue has grown at a 70.9% CAGR. Over the same time horizon, the company’s EBITDA and net income have grown at 88.9% and 113.2% CAGRs, respectively.

During the fiscal 2023 second quarter that ended June 30, CTRA’s operating revenue came in at $1.19 billion, while its adjusted net income came in at $291 million, or $0.39 per share. Given the outstanding operational execution, the company has increased its 2023 BOE and natural gas production guidance by 2% and oil guidance by 3% at the mid-point.