The Fed’s hawkish stance to control inflation has given rise to recessionary fears. With the possibility of the stock market sell-off deepening, we think fundamentally strong blue-chip stocks Microsoft (MSFT), UnitedHealth Group (UNH), and Dow Inc. (DOW) might be solid buys. Continue reading….
To tame surging inflation, the central bank recently raised rates by three-quarters of a percentage point for a third straight time. Moreover, many analysts expect the Fed to raise rates by at least 1.25 percentage points in its two remaining meetings this year.
Ken Griffin, Citadel’s founder, and CEO, believes the central bank has a difficult job ahead of bringing down prices while not slowing the economy too much. He said there could be a chance for a recession next year.
Moreover, the Fed officials’ outspoken commitment to combating inflation amid the continuing stock market downtrend has led to forecasts that market sell-offs could deepen in the near term.
Given this scenario, it could be wise to invest in shares of blue chip companies Microsoft Corporation (MSFT), UnitedHealth Group Incorporated (UNH), and Dow Inc. (DOW). These companies have operated for several years and have dependable earnings streams.
Microsoft Corporation (MSFT)
MSFT is a tech giant that develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing. MSFT has a market capitalization of $1.77 trillion.
On September 22, MSFT announced its plan, along with Planet Labs PBC and The Nature Conservancy, to launch the Global Renewables Watch (GRW), a living atlas intended to map and measure all utility-scale solar and wind installations. The first full global inventory is expected to be completed by early 2023.
On September 20, MSFT declared a quarterly dividend of $0.68 per share, reflecting a 10% increase over the previous quarter’s dividend. The dividend is payable to shareholders on December 8. MSFT’s forward annual dividend of $2.72 yields 1.13% on the current price. The company’s dividends have grown at a CAGR of 9.7% over the past five years.
MSFT’s total revenue increased 12.4% year-over-year to $51.87 billion in the fourth quarter that ended June 30. Its net cash from operations grew 8.5% from the year-ago value to $24.63 billion, while its net income improved 1.7% year- over year to $16.74 billion. The company’s net earnings per common share increased 2.8% from its year-ago value to $2.23.
The consensus EPS estimate of $2.32 for the first fiscal quarter ending September 2022 indicates a 2.3% improvement year-over-year. Revenue is expected to rise 10.1% year-over-year to $49.90 billion for the same quarter. MSFT topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has declined 6% over the past month.
MSFTs POWR Ratings reflect this promising outlook. The company 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.
MSFT is rated a B in Stability and Quality. Within the Software – Business industry, it is ranked #11 of 54 stocks.
To see additional POWR Ratings for Value, Momentum, Growth, and Sentiment for MSFT, click here.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company that offers consumer-oriented health benefit plans and services, software and information products, health care coverage, and well-being services. The company operates through four segments: Optum Health; OptumInsight; OptumRx; and UnitedHealthcare. It has a $475.95 billion market capitalization.
On September 26, UNH’s announced that its subsidiary UnitedHealthcare Community Plan of Nebraska had been selected by the state of Nebraska, Department of Health and Human Services, as a managed care organization to administer the Heritage Health Medicaid program.
“We are honored to continue our partnership with the state to build a robust Medicaid program that delivers best-in-class solutions to the diverse needs of our members,” said Jeff Stafford, chief executive officer of UnitedHealthcare Community Plan of Nebraska.
On September 21, UNH’s UnitedHealthcare and Peloton Interactive Inc. (PTON) announced that they had renewed and expanded their relationship to extend subscription services. This engagement is expected to help UNH’s consumers maximize the value of their health benefits, which should bolster its client base.
UNH’s $6.60 per share forward annual dividend yields 1.28% on the current price. The company’s dividends have grown at a 17.7% CAGR over the past five years.
For the fiscal second quarter that ended June 30, 2022, UNH’s revenues increased 12.6% year-over-year to $80.33 billion. The company’s earnings from operations rose 19.3% from the year-ago value to $7.13 billion. Its net earnings and adjusted earnings per share attributable to UNH common shareholders came in at $5.20 billion and $5.57, up 18.9% and 18.5% year-over-year.
Analysts expect UNH’s revenue for the fiscal third quarter ending September 2022 to come in at $80.56 billion, indicating an 11.4% rise from the prior-year period. Also, Street expects the company’s EPS for the same quarter to grow 20.4% year-over-year to $5.44. The company surpassed consensus EPS estimates in each of the trailing four quarters.
UNH’s shares have gained 31.4% over the past year and 2.7% year-to-date.
It’s no surprise that UNH has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
UNH has a B grade for Growth, Stability, Sentiment, and Quality. It is ranked #4 out of the 11 stocks in the A-rated Medical – Health Insurance industry.
Beyond what we’ve stated above, we have also given UNH grades for Value and Momentum. Get all UNH ratings here.
Dow Inc. (DOW)
DOW provides materials science solutions for packaging, infrastructure, mobility, and consumer applications. It operates through Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials & Coatings segments. DOW has a $31.71 billion market capitalization.
On September 23, DOW announced its partnership with Lion Corporation to launch recyclable refill bags for Shokubutsu Monogatari’s shower cream in Thailand. This agreement to develop easy-to-recycle refill bags should enable DOW to expand its customer base in new markets.
On September 14, DOW announced an agreement with French recycling company Valoregen to contribute toward building the largest single hybrid recycling site in France. DOW is expected to be the primary recipient of post-consumer resins, which it would use to develop new plastic products marketed under Dow’s REVOLOOP™ product range.
DOW’s forward annual dividend of $2.80 yields 6.18% on the current price.
DOW’s net sales increased 12.8% year-over-year to $15.66 billion for the second quarter that ended June 30, 2022. For the six months ended June 30, its non-GAAP net income increased 12.6% year-over-year to $3.44 billion , while its non-GAAP EPS amounted to $4.65, increasing 14% year-over-year. The company’s cash provided by operating activities rose 101.8% from its prior-year period to $3.46 billion.
The company’s EPS is expected to be $7.39 for the fiscal year ending December 2022. Street expects DOW’s revenue to improve 4.7% year-over-year to $57.56 billion in the same year. Additionally, DOW surpassed the Street’s EPS estimates in each of the trailing four quarters.
The stock has declined 8.2% over the past month.
DOW’s POWR Ratings reflect its promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. It is ranked #33 of 87 stocks in the B-rated chemicals industry.
Click here to see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for DOW.
MSFT shares rose $3.86 (+1.60%) in premarket trading Tuesday. Year-to-date, MSFT has declined -26.83%, versus a -20.78% 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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