Recessionary fears have revived once again amid the credit crunch triggered by the recent financial system failures, which were exacerbated further by the quarter-point rate hike by the Fed. Given the uncertain macroeconomic backdrop, let us explore the stocks UnitedHealth Group (UNH), Danaher Corporation (DHR), and ServiceNow, Inc. (NOW), which might be the strongest stocks to buy now.
Since inflation remains well above the Fed’s target rate of 2%, the Fed’s rate hike for the ninth consecutive time by 25 basis points winched up the benchmark rate to 4.75%-5%. This move came in despite the recent banking sector tumult, which soared anticipations of the Fed’s rate hike pause.
Experts anticipate results of such monetary policy tightening could be excruciating and tip the economy into a painful recession. According to the latest Bank of America survey, about 42% of fund managers see a recession happening within the next 12 months, up from 24% in February.
Moreover, Minneapolis Fed President Neel Kashkari believes that the banking sector turmoil brings the U.S. economy closer to a recession. Recently, responding to a question, he stated, “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. And then that credit crunch, just as you said, would then slow down the economy.”
Against this backdrop, fundamentally strong stocks UNH, DHR, and NOW could be wise portfolio additions to garner significant returns in the foreseeable future.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company. The company operates through four segments: Optum Health; OptumInsight; OptumRx; and UnitedHealthcare. It offers consumer-oriented health benefit plans and services, software and information products, health care coverage, and well-being services.
On January 23, Optum Rx, UNH’s pharmacy services company, launched Price Edge, a tool that seamlessly compares direct-to-consumer pricing for traditional generic drugs with insurance pricing to ensure members receive the lowest prescription drug price. This should benefit the company.
On February 27, UNH’s board of directors authorized a dividend payment of $1.65 per share, paid to shareholders on March 21, 2023. This reflects the company’s ability to pay back its shareholders.
Its annual dividend of $6.60 yields 1.39% on prevailing prices. The company’s dividend payouts have increased at a 15.2% CAGR over the past three years and 17.1% CAGR over the past five years. UNH’s four-year average dividend yield is 1.36%. UNH has increased its dividend for 13 consecutive years.
The stock’s trailing-12-month EBITDA margin of 9.51% is 200.1% higher than the industry average of 3.17%. Its trailing-12-month ROCE, ROTC, and ROTA of 26.91%,13.10%, and 8.19% compare to the industry averages of negative 39.46%, 21.84%, and 31.41%, respectively.
For the fiscal fourth quarter that ended December 31, 2022, UNH’s total revenues increased 12.3% year-over-year to $82.79 billion. In addition, adjusted net earnings attributable to UNH common shareholders came in at $5.06 billion and $5.34 per share, up 18.1% and 19.2% year-over-year, respectively.
Analysts expect UNH’s revenue for the fiscal first quarter ending March 2023 to come in at $89.78 billion, indicating a 12% year-over-year growth. Street expects the company’s EPS for the same quarter to grow 10.7% year-over-year to $6.08. The company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is commendable.
UNH gained 1.2% intraday to close the last trading session at $481.90.
UNH’s POWR Ratings reflect its fundamental strength. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UNH has a B grade for Growth, Stability, Sentiment, and Quality. In the A-rated 10-stock Medical – Health Insurance industry, it is ranked #5.
Beyond what has been stated above, we’ve also given UNH grades for Value and Momentum. Get all UNH ratings here.
Danaher Corporation (DHR)
DHR is a designer, manufacturer, and marketer of professional, medical, industrial, and commercial products and services. The company’s segments include Life Sciences; Diagnostics; and Environmental & Applied Solutions.
On March 7, DHR announced a strategic partnership with the University of Pennsylvania, focusing on cell therapy innovation. The multi-year partnership aims to develop new technologies to improve the consistency of clinical outcomes for patients and overcome manufacturing bottlenecks in the delivery of next-generation engineered cell products.
On February 22, DHR announced a regular quarterly dividend of $0.27 per share of its common stock, payable to holders on April 28, 2023. Also, DHR’s board of directors had approved a quarterly cash dividend of $12.50 per share of its 5.00% Series B Mandatory Convertible Preferred Stock, payable to holders on April 17, 2023.
Its annual dividend of $1.08 yields 0.44% on prevailing prices. The company’s dividend payouts have increased at a 13.7% CAGR over the past three years and 12.3% CAGR over the past five years.
The stock’s trailing-12-month EBITDA margin of 34.84% is 999.1% higher than the industry average of 3.17%. Its trailing-12-month ROCE is 15.73% compared to the industry average of negative 39.46%.
For the fiscal fourth quarter that ended December 31, 2022, DHR’s sales increased 2.7% year-over-year to $8.37 billion. During the same quarter, the company’s operating profit increased 6.6% year-over-year to $2.30 billion.
Its net earnings attributable to common stockholders increased 26.5% year-over-year to $2.21 billion, while its adjusted net earnings per common share from continuing operations increased 6.7% year-over-year to $2.87 for the same quarter.
Analysts expect DHR’s revenue and EPS for the fiscal year ending December 2023 to come in at $30.22 billion and $10.03, respectively. Moreover, DHR surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock declined marginally intraday to close the last trading session at $247.97.
DHR’s promising outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our POWR Ratings system.
DHR also has a B grade for Stability, Sentiment, and Quality. DHR is ranked #5 of 54 stocks in the Medical – Diagnostics/Research industry.
In addition to the ratings discussed above, additional ratings for DHR’s Momentum, Value, and Growth can be found here.
ServiceNow, Inc. (NOW)
NOW provides enterprise cloud computing solutions that define, structure, consolidate, manage, and automate services for enterprises worldwide. It serves government, financial services, healthcare, telecommunications, manufacturing, IT services, technology, oil and gas, education, and consumer products through a direct sales team and resale partners.
The stock’s trailing-12-month gross profit margin and EBITDA margin of 78.29% and 10.88% are 55.5% and 11.2% higher than the industry average of 50.35% and 9.78%. Its trailing-12-month levered FCF margin of 34.82% is 473% higher than the industry average of 6.08%.
For the fiscal fourth quarter that ended December 31, 2022, NOW’s non-GAAP total revenues increased 24.4% year-over-year to $2.03 billion. During the same quarter, the company’s non-GAAP gross profit increased 22.2% year-over-year to $1.60 billion, while its non-GAAP income from operation increased 48.2% year-over-year to $544 million.
Moreover, its non-GAAP net income and net income per share stood at $464 million and $2.28, up 56.8% and 56.2% year-over-year, respectively.
Analysts expect NOW’s revenue for the fiscal first quarter ending March 2023 to come in at $2.09 billion, indicating a 21.1% increase year-over-year. The company’s EPS is also expected to grow 18.4% year-over-year to $2.05 in the same quarter. Moreover, NOW has also surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 13.8% and 13.3% over the past six months and three months, respectively, to close the last trading session at $431.31.
NOW’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
NOW also has an A grade in Growth and a B for Sentiment and Quality. NOW is ranked #10 of 51 stocks in the Software – Business industry.
Beyond what we have mentioned above, additional ratings for NOW’s Momentum, Stability, and Value can be found here.
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UNH shares were trading at $483.27 per share on Tuesday morning, up $1.37 (+0.28%). Year-to-date, UNH has declined -8.52%, versus a 3.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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