November’s job growth was better than expected, even after the Federal Reserve’s aggressive action to cool the economy. Moreover, good GDP growth in the third quarter and analysts predicting a mild recession in 2023 are stimulating optimism. Amidst this, quality stocks McDonald’s (MCD), Cigna (CI), and O’Reilly Automotive (ORLY) could be steady buys now. Read more.
Despite the Federal Reserve’s aggressive efforts to slow the labor market and tackle inflation, job growth was better than expected in November. According to the Labor Department, non-farm payrolls rose by 263,000 for the month, above the expected 200,000, while the unemployment rate was 3.7%. On top of that, average hourly earnings rose 0.6% for the month, double the Dow Jones estimate.
On the bright side, these figures indicate that the US economy picked up again in the second half of the year. Besides, while warnings about the possibility of a recession has exited the financial sector since the summer when JP Morgan Chase & Co. CEO Jamie Dimon said he saw a “hurricane” gathering on the economic horizon, economists now predict the recession will be mild, adding to optimism.
In addition, the US GDP grew at a 2.9% annual rate in the third quarter, a strong setback from shrinkage in the first half of the year. This recovery in growth in the third quarter was led by solid gains in exports and consumption that were stronger than originally reported.
Given this backdrop, fundamentally strong and smart stocks McDonald’s Corporation (MCD), Cigna Corporation (CI), and O’Reilly Automotive, Inc. (ORLY) can be solid buys now.
McDonald’s Corporation (MCD)
MCD operates and franchises its restaurants in the US and internationally. The company’s segments include the United States (US), International Operated Markets (IOM) and International Developmental Licensed Markets & Corporate (IDL).
On October 13, MCD declared a quarterly cash dividend of $1.52 per share of common stock payable on December 15, 2022, representing a 10% increase over the company’s previous quarterly dividend.
Its annual dividend of $6.08 yields 2.22% at current share prices. The company’s dividend payouts have increased by 6.2% CAGR over the past three years and 8.1% CAGR over the past five years. In addition, the company has a record of 21 years of continuous dividend growth.
During the fiscal third quarter ended September 30, 2022, MCD’s franchise restaurant revenue increased 4.6% year-over-year to $3.67 billion. Total operating costs and expenses fell 3.3% year-over-year to $3.11 million, while the company reported non-GAAP EPS of $2.68.
The Street expects MCD’s EPS to grow 9.3% year-over-year to $2.44 in the current fiscal quarter ending December 2022. It has topped EPS estimates in three of the four trailing quarters.
Over the past six months, the stock has gained 10.1%, closing the last trade at $273.40. MCD has a 24-month beta of 0.66.
MCDs POWR Ratings reflects this promising view. The company has an overall rating of B, which means Buy in our proprietary rating system. POWR Ratings evaluates stocks based on 118 different factors, each with its own weighting.
MCD has an A grade for quality and a B for stability and sentiment. Within B-rated Restaurants industry, it is ranked No. 15 out of 45 stocks.
In addition to the POWR rankings mentioned above, you can see the MCD for Growth, value and momentum.
Cigna Corporation (CI)
CI offers insurance and related products and services in the United States. CI has two segments: Evernorth and Cigna Healthcare. The company distributes its products and services through insurance brokers and consultants.
On October 12, CI announced the availability of comprehensive and cost-effective health plans for Texas residents in the individual marketplace this year. This should provide access to affordable, predictable and simple health coverage and attract more customers.
On September 15, CI’s Evernorth segment announced that it had expanded its Digital Health Formulary to include five new app-based programs to help people better manage sleep problems, anxiety, alcohol and opioid use disorders and inflammatory conditions. The expansion is expected to be beneficial for the company.
On October 26, CI declared a dividend of $1.12 per share on its common stock, paid to shareholders on December 21.
Its annual dividend of $4.48 yields 1.37% at current prices. The company’s dividend payouts have increased by 382% CAGR over the past three years and 157% CAGR over the past five years.
CI’s total increased 2.2% year-over-year to $45.28 billion for the third quarter ended September 30, 2022. Pharmacy revenue came in at $32.76 billion, up 5.6% year-over-year . Additionally, its adjusted EPS grew 5.4% year-over-year to $6.04.
Analysts expect CI’s EPS to increase 13.2% year-over-year to $23.16 in the current fiscal year ending December 2022. Revenue is expected to increase 3.7% year-over-year to $180.58 billion for the current year. It has beaten EPS estimates in each of the last four quarters.
Over the past year, the stock has rallied 63.7% to end its last trade at $288.04. It has increased by 42.49% so far this year. CI has a 24-month beta of 0.52.
It’s no surprise that CI has an overall A rating, which equates to a strong buy in our proprietary rating system. It has a B grade for value, sentiment and quality. Within A-rated Medical – health insurance industry, it is ranked number 5 out of 11 shares.
To access additional POWR ratings for CI growth, momentum and stability, click here.
O’Reilly Automotive, Inc. (ORLY)
ORLY operates as a retailer and supplier of parts, tools, supplies, equipment and accessories for the automotive industry. The company supplies new and remanufactured car parts, maintenance and accessories. It also offers body paint, related materials, automotive tools and professional service equipment for service providers.
ORLY’s sales increased 9.2% year over year to $3.80 billion for the third quarter ended September 30, 2022. The company’s gross profit increased 6.4% year over year to $1.93 billion. Net income rose 4.8% from the same period last year to $585.44 million, while EPS rose 13.6% from the prior quarter to $9.17.
For the fiscal first quarter ending March 2023, ORLY’s EPS is expected to increase 14.3% year-over-year to $8.19. Likewise, revenue is expected to increase 5.6% year-over-year to $3.48 billion.
The stock has risen 35.9% over the past six months to close at a recent trade of $855.97. It has a 24-month beta of 0.82.
As reflected in the fundamentals, ORLY has an overall rating of B, which translates to a buy in our proprietary rating system. The share has an A grade for sentiment and quality. It is ranked No. 13 out of 63 shares in B-rated Car parts industry.
click here to see ORLY’s additional growth, value, momentum and stability ratings.
MCD stock was down $1.70 (-0.62%) in premarket trading on Monday. So far this year, MCD has risen 3.62%, against a -13.97% rise in the benchmark S&P 500 over the same period.
About the author: Kritika Sarmah
Her interest in risky instruments and passion for writing turned Kritika into 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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