Despite the monthly increase of 0.5%, annual inflation continued to slow for the seventh consecutive month to 6.4% in January 2023, as per the Bureau of Labor Statistics. The core CPI index increased 0.4% from December but moderated annually to 5.6%.
Moreover, shelter costs largely pushed up monthly prices, accounting for nearly half of the increase. Erik Lundh, the principal economist at the Conference Board, said that the shelter component of CPI typically lags market conditions by 12 months. Home prices and rents have cooled during the past year, so the CPI is expected to reflect that soon.
Additionally, the Commerce Department recently reported that retail sales in the U.S. saw a substantial increase in January, rising 3% after tumbling by 1.1% last month. Economists had expected retail sales to jump by 1.8%.
While the strong retail sales report suggests a recession might be avoided, it has added to the fears that the Fed might surge interest rates for longer than expected to ensure that inflation doesn't rebound.
The Fed has raised its benchmark rate seven times, taking the overnight borrowing rate to a target range of 4.5%-4.75%. This has resulted in a $16.9 trillion total US household debt during the fourth quarter across all categories, up 2.4% from the prior quarter, indicating that U.S. economic growth is being fueled by borrowing.
Given the economic uncertainty, fundamentally strong stocks Pfizer Inc. (PFE), CVS Health Corporation (CVS), and Universal Logistics Holdings, Inc. (ULH) might be solid investments in 2023. Moreover, these companies pay stable dividends.
Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas.
On February 16, PFE announced positive results from the Phase 3 TALAPRO-2 study of TALZENNA, an oral poly ADP-ribose polymerase inhibitor, in combination with XTANDI, demonstrating a statistically significant and clinically meaningful improvement in radiographic progression-free survival.
In addition, the U.S. Food and Drug Administration (FDA) has also granted a Priority Review for Pfizer’s supplemental new drug application for TALZENNA in combination with XTANDI.
On February 10, 2023, PFE announced that the U.S. Food and Drug Administration (FDA) had approved its supplemental New Drug Application for CIBINQO (abrocitinib), expanding its indication to include adolescents (12 to <18 years). CIBINQO was previously approved only for treating adults 18 years and older.
These developments in the company’s product line should boost revenues in the future.
Its annual dividend of $1.64 yields 3.80% on the current market price, and its four-year average yield is 3.73%. PFE has paid dividends for 12 consecutive years and has increased its dividend payouts at a CAGR of 5.5% over the past five years.
PFE’s revenues rose 1.9% year-over-year to $24.29 billion for the fiscal 2022 fourth quarter. Its adjusted net income increased 44.2% year-over-year to $6.55 billion, while its adjusted EPS grew 44.3% year-over-year to $1.14.
Street expects PFE’s revenue and EPS to come in at $70.45 billion and $3.55 for the current fiscal year, 2023. The company has an impressive earnings surprise history as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
PFE gained marginally intraday to close the last trading session at $43.21.
PFE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Value and a B for Quality. PFE is ranked #25 in the 174-stock Medical - Pharmaceuticals industry.
To access additional PFE ratings for Growth, Momentum, Stability, and Sentiment, click here.
CVS Health Corporation (CVS)
CVS is a health service provider operating through four segments: Health Care Benefits; Pharmacy Services; Retail/LTC; and Corporate/Other. Its offerings include health & wellness services, health plans, pharmacy services, and prescription drug coverage.
On February 8, CVS and Oak Street Health (OSH) entered into a definitive agreement under which CVS will acquire OSH in an all-cash transaction at $39 per share, representing an enterprise value of approximately $10.6 billion.
Both companies aim to benefit patients' long-term health by reducing care costs and improving outcomes, particularly those in underserved communities.
While CVS’ four-year average dividend yield is 2.73%, its annual dividend of $2.42 translates to a 2.75% yield on the current price level. Its dividends have grown at a 4.1% CAGR over the past three years.
CVS’ total revenue increased 9.5% year-over-year to $83.85 billion during the fiscal fourth quarter that ended December 31, 2022. The company’s operating income grew 62.3% year-over-year to $3.62 billion, while its adjusted EPS rose marginally year-over-year to $1.99.
Analysts expect CVS’ EPS and revenue to increase 2.1% and 3.4% year-over-year to $2.45 and $83.37 billion, respectively, in the fiscal second quarter ending June 2023. The company has surpassed the EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock gained marginally intraday to close the last trading session at $88.58.
It’s no surprise that the stock has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Value and Stability. Among the four stocks in the B-rated Medical – Drug Stores industry, CVS is ranked first.
Click here to see the additional ratings of CVS for Growth, Momentum, Sentiment, and Quality.
Universal Logistics Holdings, Inc. (ULH)
ULH offers logistics and transportation solutions. It provides truckload services, domestic and international freight forwarding, and final mile and ground expedite services. The company serves the automotive, steel, oil and gas, alternative energy, and manufacturing industries and other transportation companies.
ULH’s annual dividend of $0.42 yields 1.29% at the current price level. Its dividend payouts have increased at an 8.5% CAGR over the past five years. It has a four-year average annual dividend yield of 1.97%.
During the fourth quarter that ended December 31, 2022, ULH’s income from operations grew 102.6% year-over-year to $48.17 million. The company’s net income rose 106.5% year-over-year to $33.45 million, while its EPS increased 111.7% from the prior-year quarter to $1.27.
ULH’s revenue is expected to amount to $1.91 billion for the fiscal year 2023. The company’s EPS for the same year is expected to be $5.60. Moreover, ULH has surpassed its consensus EPS and revenue estimates in three of the trailing four quarters.
The stock has gained 82.8% over the past year to close the last trading session at $32.64.
ULH’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
ULH has a B grade for Value and Momentum. Within the A-rated Air Freight & Shipping Services industry, the stock is ranked #3 out of 16 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see ULH ratings for Growth, Sentiment, Stability, and Quality here.
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PFE shares rose $0.04 (+0.09%) in premarket trading Monday. Year-to-date, PFE has declined -14.90%, versus a 6.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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