Inflation eased again in November, which could allow the Fed to slow interest-rate hikes into the following year. Overall, the odds of the economy avoiding an anticipated recession are increasing. Given this backdrop, quality stocks CVS Health (CVS), ADT (ADT), ODP Corporation (ODP), and Universal Logistics (ULH) will likely see further upside next year. Read on….
This year, the stock market has seen significant volatility due to record-high inflation, the Russia-Ukraine war, and the Fed hiking interest rates at a pace not seen in decades. However, inflation cooled notably last month and is at its lowest since December 2021.
The Labor Department yesterday reported that the Consumer Price Index (CPI) increased 7.1% from a year ago in November, lower than economists’ expectations of 7.3%. The moderation in inflation made investors optimistic about the central bank’s future course of action on the policy front.
“Cooling inflation will boost the markets and take pressure off the Fed for raising rates, but most importantly this spells real relief starting for Americans whose finances have been punished by higher prices,” said Robert Frick, corporate economist with Navy Federal Credit Union.
A weaker-than-expected CPI report combined with favorable data on jobs and income is increasing hopes that the economy could avoid an anticipated recession next year or suffer a mild downturn. Moody’s Analytics chief economist Mark Zandi is confident that the U.S. economy will narrowly avoid a recession, citing the recent favorable economic and market indicators.
According to Gagnon of the Peterson Institute of International Economics, the chances of a soft landing are between 50% and 60%, including the possibility of a “very, very mild recession.”
Given the backdrop, we think it could be wise to invest in fundamentally sound stocks CVS Health Corporation (CVS), ADT Inc. (ADT), The ODP Corporation (ODP), and Universal Logistics Holdings, Inc. (ULH) that have more room to run next year.
CVS Health Corporation (CVS)
CVS provides health services in the United States. The company operates through three segments: Health Care Benefits; Pharmacy Services; and Retail/LTC. It operates more than 9,900 retail locations and 1,200 MinuteClinic locations, online retail pharmacy websites, LTC pharmacies, and onsite pharmacies.
On December 1, CVS opened its first MinuteClinic locations in northern Delaware. MinuteClinic, the medical clinics inside select CVS Pharmacy stores, offers high-quality, affordable, and convenient care for various acute and chronic conditions for patients ages 18 months and older.
On September 5, CVS entered a definitive agreement with Signify Health (SGFY) to acquire Signify Health.
CVS Health President and CEO Karen S. Lynch said, “This acquisition will enhance our connection to consumers in the home and enables providers to address patient needs better as we execute our vision to redefine the healthcare experience. In addition, this combination will strengthen our ability to expand and develop new product offerings in a multi-payor approach.”
For the fiscal 2022 third quarter ended September 30, 2022, CVS’ total revenues increased 10% year-over-year to $81.16 billion. Its adjusted operating income increased by 3.9% from the prior-year period to $4.23 billion. In addition, the company’s adjusted earnings per share came in at $2.09, up 6.1% year-over-year.
Over the past three years, CVS’ revenue and EBIT have grown at CAGRs of 8.9% and 7.2%, respectively.
Analysts expect CVS’ revenue and EPS for the current fiscal year (ending December 2022) to increase 7.7% and 2.6% from the prior year to $314.49 billion and $8.62, respectively. The company’s revenue and EPS for the next year are expected to grow 3.4% and 2.7% year-over-year to $325.26 billion and $8.86, respectively.
Furthermore, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 2.7% and 11.3% over the past six months to close the last trading session at $101.19.
CVS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
CVS has an A grade for Growth and a B for Stability and Sentiment. It is ranked first out of 4 stocks in the B-rated Medical – Drug Stores industry.
We have also given CVS grades for Value, Momentum, and Quality. Get all the CVS ratings here.
ADT Inc. (ADT)
ADT provides security, interactive, and innovative home solutions to serve residential, small business, and commercial customers in the United States. Its segments include Consumer and Small Business (CSB); Commercial; and ADT Solar business (Solar). The company operates through a network of nearly 250 sales and service offices and three regional distribution centers.
On September 6, ADT announced its partnership with State Farm. State Farm will make a $1.2 billion equity investment in ADT, resulting in State Farm owning approximately 15% of ADT. Additionally, ADT plans to partner with State Farm and build upon its existing relationship with Alphabet (GOOG) (GOOGL), with the latter agreeing to commit an additional $150 million to support this opportunity.
In August, ADT announced its partnership with Uber Technologies, Inc. (UBER) to integrate ADT mobile safety solutions into the Uber app for riders and drivers in the United States to get live help, via phone or text, from ADT professional monitoring agents. This marks yet another addition to ADT’s growing Clientele that utilizes Safe by ADT to power their app-based mobile safety features.
For the third quarter of the fiscal year 2022 ended September 30, ADT’s total revenue increased 21.8% year-over-year to $1.60 billion, while the company’s adjusted EBITDA grew 11.9% year-over-year to $620 million. The company reported an adjusted net income of $83 million or $0.10 per share, compared to an adjusted net loss of $54 million or $0.07 per share in the previous-year quarter.
ADT’s revenue and EBIT have grown at CAGRs of 6.9% and 18%, respectively, over the past three years.
Analysts expect ADT’s revenue for the fiscal year ending December 2022 to increase 20% year-over-year to $6.37 billion. The company’s EPS for the current year is expected to come in at $0.51, compared to a loss of $0.25 per share during the previous year. Moreover, ADT’s EPS is expected to grow by 3.9% per annum over the next five years.
Shares of ADT have gained 7.1% over the past month and 20.5% over the past year to close the last trading session at $9.83.
ADT’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. It has an A grade for Growth and Sentiment and a B for Stability.
ADT is ranked #5 of 60 stocks in the Home Improvement & Goods industry. Click here to see the additional ratings of ADT for Value, Momentum, and Quality.
The ODP Corporation (ODP)
ODP is an office supply holding company that offers business services, products, and digital workplace technology solutions through an integrated business-to-business distribution platform and omnichannel presence. It serves small, medium, and enterprise businesses. The company operates through two segments: Business Solutions and Retail.
In August, Office Depot, a wholly owned subsidiary of ODP and Uber Technologies, Inc., teamed up to bring business, office, and school essentials to customers nationwide. Office Depot is the first business solutions and office supply retailer to be available on Uber Eats. This partnership might boost the company’s revenue streams and extend its market reach.
For the fiscal 2022 third quarter ended September 24, 2022, ODP’s reported sales from ODP Business Solutions Division increased 9% year-over-year to $1 billion as more business customers returned to the workplace. Its earnings per share from continuing operations came in at $1.36, up 2.3% year-over-year. Operating cash inflows from continuing operations grew 34.7% year-over-year to $163 million.
Furthermore, the company’s adjusted free cash flow came in at $160 million, up 30.1% year-over-year.
ODP’s EPS has grown at an 85.4% CAGR over the past three years. Moreover, its total assets have increased at a CAGR of 7.6% over the same period.
The consensus revenue estimate of $2.14 billion for the fourth quarter of fiscal 2022 (ending December 31, 2022) indicates a 4.6% year-over-year improvement. Also, analysts expect the company’s EPS to grow 10.7% year-over-year to $0.79. The company has topped the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 26% over the past six months and 22.1% over the past year to close its last trading session at $46.11.
ODP’s solid fundamentals and promising outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
ODP has a grade of A for Growth and Quality and a B for Value. In the 47-stock Specialty Retailers industry, it is ranked #1.
Click here to access the additional POWR Ratings for ODP (Stability, Momentum, and Sentiment).
Universal Logistics Holdings, Inc. (ULH)
ULH provides transportation and logistics solutions in the United States, Mexico, Canada, and Colombia. It offers truckload services; domestic and international freight forwarding, customs brokerage services; and final mile and ground expedite services.
For the fiscal third quarter ended October 1, 2022, ULH’s total operating revenues increased 13.5% year-over-year to $505.69 million. The company’s income from operations came in at $69.77 million, up 317.4% year-over-year. Its non-GAAP EBITDA was $84.40 million, compared to $33.10 million in the prior year’s quarter.
In addition, the company’s net income increased 371.9% year-over-year to $48.48 million, while its EPS came in at $1.84, representing a 384.2% increase from the prior-year quarter.
ULH’s revenue and EBIT have grown at CAGRs of 4.9% and 8.1%, respectively, over the past three years. Its EPS has improved at a 6.5% CAGR over the same period.
Analysts expect ULH’s EPS for the fiscal year (ending December 2022) to come in at $6.40, indicating a 90.3% year-over-year increase. The consensus revenue estimate of $2.02 billion for the ongoing year represents a 15.4% year-over-year rise. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 92.3% year-to-date and 103.3% over the past year to close the last trading session at $35.98.
ULH’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
ULH has a grade A for Growth. The stock has a grade B for Value, Momentum, Stability, and Sentiment.
CVS shares were unchanged in premarket trading Wednesday. Year-to-date, CVS has gained 0.30%, versus a -14.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.