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3 Stocks with Major Upside Potential

January 20
10:38 2023

Just as the declining Consumer Price Index (CPI) inflation rate was helping a bear market catch a break, a sharper-than-expected decline in retail sales during the holiday month and a third consecutive month of decline in industrial activity have reignited concerns of an economic downturn induced by the single-mindedly hawkish Federal Reserve.

Moreover, with the U.S. economy perilously close to defaulting on its stratospheric debt, unless the representative can agree to buy the government more space by raising the debt ceiling, the market volatility is unlikely to ease anytime soon.

In such a scenario, it would be wise to load up on shares of fundamentally strong businesses which are well-entrenched not just to weather an economic slowdown but also to emerge stronger.

To that end, CVS Health Corporation (CVS – Get Rating), Archer-Daniels-Midland Company (ADM – Get Rating), and Ooma, Inc. (OOMA – Get Rating) appear to be appropriate investments for a stabler and more profitable year ahead.

CVS Health Corporation (CVS – Get Rating)

CVS operates as a health solutions company. The company operates 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 December 15, 2022, CVS declared its quarterly dividend of $0.61, payable on February 1, 2023. The company pays $2.42 annually as dividends. This translates to a 2.76% yield at its current price, at par with the 4-year average dividend yield. The current dividend payout ratio is 24.57%. Its dividends have grown at a 2.4% CAGR over the past five years.

On September 5, CVS announced its entry into a definitive agreement to acquire Signify Health (SGFY) for approximately $8 billion. According to CVS President and CEO Karen S. Lynch, “Signify Health will play a critical role in advancing our health care services strategy and gives us a platform to accelerate our growth in value-based care.”

For the fiscal 2022 third quarter ended September 30, 2022, CVS’ total revenue increased 10% year-over-year to $81.16 billion, while its adjusted operating income grew 3.9% from the prior-year quarter to $4.23 billion. During the same period, the adjusted income attributable to CVS increased 5.3% and 6.1% year-over-year to $2.76 billion or $2.09 per share, respectively.

Analysts expect CVS’ revenue and EPS for the fiscal year ended December 31, 2022, to increase 7.7% and 2.8% year-over-year to $314.68 billion and $8.64, respectively. Revenue and EPS are expected to increase by a further 3.5% and 2.6% during the current fiscal to come in at $325.68 billion and $8.86, respectively. The company has also surpassed the consensus EPS estimates in each of the trailing four quarters.

The stock has dipped 8.1% over the past month to close the last trading session at $87.60. It is trading at 10.14 times its forward earnings, 49.1% lower than the industry average of 19.94.

CVS’ POWR Ratings reflect solid prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

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