The Fed’s intention to continue raising interest rates, disappointing economic data, and a weak earnings season could keep the stock market highly volatile. Hence, investing in quality stocks Microsoft (MSFT), Johnson (JNJ), and Novartis (NVS) could be safe. Continue reading.
Despite inflation showing signs of easing, Fed policymakers signaled to continue raising interest rates throughout this year. In addition to hawkish comments from Fed officials, weak economic data fueled recession fears. U.S. retail sales dropped 1.1% last month, while factory production fell 0.6% for the first time since June.
Amid worsening macroeconomic conditions, the World Bank recently cut its 2023 economic growth outlook to 1.7% from its previous projection of 3%. The revision was led by a significant downgrade to the U.S. growth outlook, from an earlier projection of 2.4% to 0.5%.
Furthermore, the fourth quarter earnings season is expected to be weak due to high borrowing costs and other economic headwinds. Morgan Stanley expects the S&P 500 to plunge approximately 25% to a two-year low of 3,000 points as earnings season ramps up.
Since the stock market is expected to remain highly volatile in the upcoming months, it could be safe to invest in dividend-paying stocks Microsoft Corporation (MSFT), Johnson & Johnson (JNJ), and Novartis AG (NVS).
Microsoft Corporation (MSFT)
Software giant MSFT develops, licenses, and supports software, services, solutions, and devices worldwide. The company’s segments include More Personal Computing; Intelligent Cloud; and Productivity and Business Processes.
On January 23, 2023, the tech giant announced a new multiyear, multibillion-dollar investment in ChatGPT-maker OpenAI. The deal marks the third partnership phase between the two companies, following MSFT’s previous investments in 2029 and 2021.
MSFT’s CEO Satya Nadella said, “We formed our partnership with OpenAI around a shared ambition to responsibly advance cutting-edge AI research and democratize AI as a new technology platform.”
MSFT has a record of increasing its dividend for 18 consecutive years. It pays a $2.72 per share dividend annually, which translates to a 1.12% yield on the current price. Its four-year average dividend yield is 1.03%. The company’s dividend payouts have grown at a 10.4% CAGR over the past three years.
For the fiscal 2023 second quarter ended December 31, 2022, MSFT’s revenue increased 2% year-over-year to $52.75 billion. The company’s revenue from Productivity and Business Processes segment grew 7% from the prior-year period to $17 billion, while revenue from the Intelligent Cloud segment rose 18% year-over-year to $21.50 billion.
Analysts expect MSFT’s revenue and EPS for the current fiscal year (ending June 2023) to come in at $212.76 billion and $9.53, indicating increases of 7.3% and 3.5% year-over-year, respectively. Moreover, the company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
In addition, the company’s revenue and EPS for the next fiscal year are expected to grow 12.6% and 16.2% from the previous year to $239.50 billion and $11.07, respectively.
Shares of MSFT have gained 0.8% over the past month to close the last trading session at $240.61.
MSFT’s POWR Ratings reflect its promising outlook. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Stability and Quality. Within the Software – Business industry, it is ranked #10 of 52 stocks.
Beyond what we stated above, we also have MSFT’s ratings for Growth, Sentiment, Value, and Momentum. Get all MSFT ratings here.
Johnson & Johnson (JNJ)
JNJ develops, manufactures, and sells various products in the healthcare field worldwide. The company operates through three segments: Consumer Health; Pharmaceutical; and Medical Devices.
On December 22, 2022, JNJ completed the acquisition of Abiomed Inc. (ABMD), a world leader in breakthrough heart, lung, and kidney support technologies. Joaquin Duato, CEO of JNJ, said, “This acquisition marks another important step on Johnson & Johnson’s path to accelerating growth in our MedTech business and delivering innovative medical technologies to more people around the world.”
JNJ has raised dividends for 60 consecutive years. It pays a $4.52 per share dividend annually, which translates to a 2.69% yield on the current price. Its four-year average dividend yield is 2.60%. Its dividend payouts have grown at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years.
In the fourth quarter of fiscal 2022 ended December 31, JNJ reported operational growth, excluding the COVID-19 vaccine of 4.6%. The company’s adjusted net earnings rose 9.5% year-over-year to $6.22 billion. Also, its adjusted EPS came in at $2.35, up 10.3% year-over-year.
Analysts expect JNJ’s revenue and EPS for the fiscal year (ending December 2023) to increase 2.9% and 2.2% year-over-year to $97.65 billion and $10.37, respectively. The company’s revenue and EPS for the next year are expected to grow 2.2% and 3.9% year-over-year to $99.82 billion and $10.78, respectively. Moreover, it surpassed the consensus EPS estimates in all four trailing quarters.
Over the past year, the stock has gained 1.1% to close the last trading session at $169.51.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system.
JNJ has a B for Stability, Quality, and Value. In the Medical – Pharmaceuticals industry, it is ranked #9 out of 169 stocks.
Click here for the additional POWR Ratings for Sentiment, Growth, and Momentum for JNJ.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments, Innovative Medicines and Sandoz.
On January 24, 2023, NVS’ Sandoz signed an agreement to acquire worldwide product rights for the leading systemic antifungal agent Mycamine® from Astellas. The acquisition of leading global echinocandin, one of three major antifungal classes, might reinforce the Sandoz global hospital offering and complement its existing leadership position in generic antibiotics.
On December 6, 2022, NVS and MorphoSys AG (MOR), a wholly owned subsidiary of Constellation Pharmaceuticals, Inc., entered a global licensing agreement. The agreement aims to enhance research and develop and commercialize pre-clinical inhibitors of a novel cancer target. This is a milestone partnership in oncology.
For the fiscal third quarter ended September 30, 2022, NVS’ net sales were $30.90 billion, with volume contributing 12 percentage points to growth. A strong performance from Entresto, Kesimpta, Cosentyx, and Kisqali primarily drove sales growth.
In addition, NVS’ cash inflows from investing activities from continuing operations stood at $5.20 billion, compared to $1.2 billion net cash outflows in the prior year’s quarter. Total current liabilities of $28.20 billion decreased by $2 billion compared to December 31, 2021.
The company pays a $3.33 per share dividend annually, which translates to a 3.61% yield on the current price. Its four-year average dividend yield is 3.57%. Its dividend payouts have grown at a CAGR of 5.5% over the past three years and 4.1% over the past five years.
Analysts expect NVS’ EPS for the year ending December 2023 to increase 7.4% year-over-year to $6.53. The company’s revenue for the current fiscal year is expected to increase by 1.5% year-over-year to $52.01 billion. The stock has gained 7.8% over the past six months and 9.8% over the past year to close the last trading session at $92.81.
NVS’ POWR Ratings reflect this strong outlook. The stock’s overall A rating translates to a Strong Buy.
It has an A grade for Stability and a B for Value and Quality. The stock is ranked #14 among 169 stocks in the Medical-Pharmaceuticals industry.
We have also given NVS grades for Sentiment, Growth, and Momentum. Get all NVS ratings here.
MSFT shares rose $0.93 (+0.39%) in premarket trading Thursday. Year-to-date, MSFT has gained 0.74%, versus a 5.29% 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.
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