The recent financial system failures and macroeconomic headwinds have weighed heavily on investors’ sentiments. Amid rekindled recessionary fears, quality stocks Eli Lilly (LLY), McDonald’s Corp. (MCD), and Cigna Corp. (CI) might be safe portfolio additions now. Read on….
Soaring anxieties amid macroeconomic turbulence and banking collapses have put significant pressure on the stock market. Against this backdrop, let us explore stocks Eli Lilly and Company (LLY), McDonald’s Corporation (MCD), and Cigna Corporation (CI), which might be safe choices for reasons mentioned throughout the article.
The Consumer Price Index (CPI) for February rose 6% annually, in line with the Dow Jones estimates. Although there was a marginal decline, it remains way above the Fed’s target of 2%. In addition, the strong job market, coupled with the Fed’s hawkish statements, has further raised the odds of further tightening the monetary policy in the upcoming FOMC meeting.
Moreover, the recent banking sector tumult raises the odds that the U.S. economy, which was already susceptible to a recession, might actually tip into one. Some experts anticipate that the changes could be excruciating and adversely impact the economy, market, and portfolios.
Richard Clarida, global economic adviser at Pimco and a former Fed vice chair, stated, “But whatever your views were on the odds of a recession before this, they’ve probably gone up.” Furthermore, Goldman Sachs (GS) slashed the 2023 Gross Domestic Product (GDP) forecast by 0.3 percentage points to 1.2% and raised its probability of a recession from 25% to 35%.
Against this backdrop, fundamentally strong stocks LLY, MCD, and CI, which could hedge investors against market downturns, might be solid buys now.
Eli Lilly and Company (LLY)
LLY discovers, develops, and markets human pharmaceuticals worldwide. The company provides diabetes, oncology, neuroscience, and other products.
On February 13, 2023, LLY announced that it would provide its Active Pharmaceutical Ingredient (API) for human insulin at a lower price to International Agencies (Bangladesh) Ltd. (IABL) to improve patient access and affordability for high-quality insulin for almost one million diabetics in Bangladesh by 2030.
On January 28, 2023, Loxo@Lilly, LLY’s oncology unit, announced that the FDA had approved JaypircaTM (pirtobrutinib, 100 mg & 50 mg tablets) to treat adult patients with relapsed or refractory Mantle Cell Lymphoma (MCL) after at least two lines of systemic therapy, including a Bruton’s Tyrosine Kinase (BTK) inhibitor. This approval should be beneficial for the company.
LLY announced a quarterly dividend of $1.13 per share, paid to the shareholders on March 10, 2023. LLY has paid dividends for 33 consecutive years. LLY’s current annual dividend of $4.52 translates to a 1.37% yield. Its dividend payouts have grown at 15% and 13.9% CAGRs over the past three and five years, respectively. LLY’s four-year average dividend yield is 1.62%.
LLY’s trailing-12-month gross profit margin of 76.77% is 37.9% higher than the 55.67% industry average. Its trailing-12-month EBITDA margin of 35.65% is 965.2% higher than the 3.35% industry average.
LLY’s trulicity revenues increased 2.8% year-over-year to $1.94 billion for the fourth quarter that ended December 31, 2022. Its net income increased 12.3% year-over-year to $1.94 billion, and its EPS came in at $2.14, up 12.6% year-over-year.
Street expects LLY’s revenue to increase 12.6% year-over-year to $7.30 billion in the fiscal second quarter ending June 2023. Its EPS is expected to increase 51.6% year-over-year to $1.89. It surpassed EPS estimates in three out of the four trailing quarters.
The stock has gained 14.4% over the past year and 6.6% over the past six months to close the last trading session at $329.18. Its five-year beta is 0.35, indicating lesser volatility than the market.
It’s no surprise that LLY has an overall B rating, equating to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B for Stability and Quality. It is ranked #32 out of 166 stocks in the Medical – Pharmaceuticals industry.
Beyond what is stated above, we’ve also rated LLY for Value, Growth, Momentum, and Sentiment. Get all LLY ratings here.
McDonald’s Corporation (MCD)
MCD operates and franchises its restaurants in the United States and internationally. The company’s segments include the United States (U.S.); International Operated Markets (IOM); and International Developmental Licensed Markets & Corporate (IDL).
MCD’s President and Chief Executive Officer, Chris Kempczinski, said, “While we expect short-term inflationary pressures to continue in 2023, we remain highly confident in Accelerating the Arches, which now includes a greater emphasis on new restaurant openings. The recently announced Accelerating the Organization initiative will complement this strategy to enable the McDonald’s System to be faster, more innovative, and more efficient.”
On February 2, MCD declared a quarterly dividend of $1.52 per share of common stock, paid to the shareholders on March 15, 2023. This reflects the shareholder return ability of the company.
Its current annual dividend of $6.08 translates to a 2.28% yield on the current price level. Its four-year average dividend yield is 2.26%. CI’s dividends have grown at a 6.4% CAGR over the past three years and an 8.3% CAGR over the past five years.
MCD’s trailing-12-month gross profit margin of 56.97% is 64.7% higher than the 34.60% industry average. Its trailing-12-month EBITDA margin of 52.69% is 338.8% higher than the 12.01% industry average.
MCD’s revenues from franchised restaurants increased 7.5% year-over-year to $3.65 billion in the fourth quarter that ended December 31, 2022. Its operating income grew 7.7% from the prior-year period to $2.58 billion. Moreover, the company’s net income and earnings per share increased 16.1% and 18.8% year-over-year to $1.90 billion and $2.59, respectively.
Street expects MCD’s EPS to grow 4.3% year-over-year to $2.66 in the fiscal second quarter ending June 2023. Also, its revenue for the same quarter is expected to increase by 6.5% year-over-year to $6.09 billion. It surpassed EPS estimates in each of the four trailing quarters.
Over the past year, the stock has gained 11.8% to close the last trading session at $267.20. Moreover, the stock has gained 4.8% over the past six months. Its five-year beta is 0.62.
MCD’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system.
MCD has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Restaurants industry, it is ranked #9 out of 46 stocks.
In addition to the POWR Ratings stated above, we have also rated MCD for Growth, Value, and Momentum. Click here to get all MCD ratings.
Cigna Corporation (CI)
CI is an insurance service provider operating through two segments: Evernorth; and Cigna Healthcare. The company offers a range of coordinated and point-solution health services and intelligence solutions through its Evernorth segment. Its Cigna Healthcare segment provides medical, pharmacy, behavioral health, dental, vision, and health advocacy programs for insured and self-insured customers.
On February 13, 2023, CI unveiled three distinct brands: The Cigna Group, the global health company; Cigna Healthcare, the health benefits provider; and Evernorth Health Services, the pharmacy, care, and benefits solutions provider. This evolution marks an important milestone in the company’s history and reflects its growing portfolio of businesses to serve more people globally.
On February 2, 2023, the company increased its quarterly dividend by 10% to $1.23 per share of common stock, payable to the shareholders on March 23, 2023.
Its current annual dividend of $4.92 translates to a 1.83% yield on the current price level. Its four-year average dividend yield is 0.69%. CI’s dividends have grown at a 385.9% CAGR over the past three years and a 158.2% CAGR over the past five years.
CI’s trailing-12-month EBITDA margin of 5.47% is 63.3% higher than the 3.35% industry average. Its trailing-12-month ROCE is 14.50% compared to the negative 39.67% industry average.
For the fiscal fourth quarter (ended December 31, 2022), CI’s total revenues increased marginally year-over-year to $45.75 billion. Its shareholders’ net income grew 4.7% year-over-year to $1.7 billion. The company’s net income per share came in at $3.83, representing a 13% year-over-year improvement.
Analysts expect CI’s revenue to increase 3.4% year-over-year to $47.13 billion in the fiscal second quarter (ending June 2023), while its EPS is expected to increase marginally year-over-year to $6.26. The company surpassed the consensus EPS estimates in each of the trailing four quarters.
It has gained 11.7% over the past year to close the last trading session at $269.45. It has a five-year beta of 0.68.
CI’s POWR Ratings reflect a strong prospect. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
CI has a B grade for Value, Stability, and Quality. Within the A-rated 10-stock Medical – Health Insurance industry, it is ranked #5.
Click here to see CI’s ratings for Growth, Momentum, and Sentiment.
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LLY shares fell $2.92 (-0.89%) in premarket trading Monday. Year-to-date, LLY has declined -9.73%, versus a 1.98% 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.