The COVID-19-pandemic-induced recession led to an abrupt pause to a 10-year-long bull run by U.S. stock markets; The country entered a recession in the first half of 2020. With economic and industrial activities frozen during the initial days of the pandemic, 2020 marked the nation’s worst economic retreat post World War II.
While most analysts and economists have characterized 2021 as the year of recovery, it will likely take an extended period for the country to reclaim pre-pandemic levels. The country’s current mass vaccination drive for coronavirus has been riddled with setbacks, most recently related to vaccine supply. The program has now become a race to inoculate as many residents as possible ahead of a threatening surge of new, more lethal, COVID-19 variants, which if unchecked will almost certainly prolong the U.S.’ still shaky economic recovery.
In terms of economic recovery, the country’s momentum has decreased significantly from the 33.4% rise in GDP in the third quarter last year (from a record -31.40% contraction in the second quarter). According to the Bureau of Economic Analysis, the country’s GDP increased 4% in the fourth quarter, with a 1.7% rise in price index or gross domestic purchases. The index rose 3.3% in the third quarter.
The country’s weak GDP growth momentum has raised concerns regarding the expected robust recovery this year. With new strains of the virus emerging around the world and still-high unemployment rates, the economic repercussions of the pandemic could reasonably be expected to stick around for the better part of this year.
Amid such a tepid economic environment, we think leading recession-proof stocks such as Walmart, Inc. (WMT), O’Reilly Automotive, Inc. (ORLY) and CVS Health Corporation (CVS), which have all demonstrated business resiliency, should prove to be good investment bets.
Walmart, Inc. (WMT)
WMT is one of the largest retail chains. It operates primarily in the U.S. and is the largest company in the world in terms of revenue. WMT is the world’s only company to have generated more than $500 billion in revenues over the past eight years consecutively. The company has been consistently ranked #1 in the Fortune 500 list since 2013.
Despite lowered demand because of the pandemic , WMT nonetheless delivered impressive financials. For the fiscal third quarter ended October 31, 2020, WMT’s revenues increased 6.1% year-over-year to $135.8 billion. Its operating income has risen 23.7% from its year-ago value to $5.80 billion, while its net income has grown 56.2% from the same period last year to $5.14 billion. WMT reported EPS of $1.81 for this period, up 56% from the prior-year quarter.
One major factor driving the company’s performance over the past year was a panic shopping frenzy. With sudden lockdowns announced by state and local governments, consumers began hoarding essentials, clearing the shelves of retail chains like WMT quickly. WMT implemented several strategies to benefit from the change in shopping trends. For example, it launched Walmart+, a subscription-based online delivery platform designed as a clear entry point into the e-commerce space.
This month , WMT partnered with Nationwide to launch a first-of-its-kind pet platform to allow people to fill pet prescriptions at Walmart pharmacies. With the demand for quality pet care growing significantly over the past year, the move should help MT increase the earnings potential of its pharmacy segment (with roughly 4700 operational units) across the country.
WMT also entered the media business last month, with the launch of Walmart Connect. It plans to become one of the top 10 advertising platforms in the United States over the next five years. Suffice to say, WMT is not simply a retail chain anymore. With its strategic entry into the e-commerce, media and pet pharmacy business over the past year, the company’s diversified operations should bolster its resiliency to recessionary trends.
A consensus EPS estimate of $1.50 for the fiscal fourth quarter ended January 31, 2021 represents an 8.7% rise year-over-year. WMT has an impressive earnings surprise history also; it surpassed the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $148 billion for its about-to-be reported quarter represents a 4.5% improvement versus the same period last year.
WMT has gained more than 35% since hitting its 52-week low of $102 in March. The stock hit its 52-week high of $153.66 on December 1, 2020.
WMT’s promising outlook is reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors.
WMT has an overall rating of A, which equates to Strong Buy in our proprietary rating system. It has a grade of A for Stability, and B for Value, Momentum, Sentiment, and Quality.
Our proprietary rating system evaluates each stock in a total of eight different categories. Click here to check additional POWR Ratings for WMT .
CVS Health Corporation (CVS)
CVS operates as a diversified pharmacy healthcare company through three segments – Pharmacy, Retail/LTC and Health Care Benefits. It is known for its Omnicare pharmacy solutions, pharmacy consulting and management services, as well as online pharmacy websites. The company’s online presence has grown significantly over the past year, with coronavirus lockdown restrictions increasing the demand for home deliveries of prescription drugs.
CVS’s revenues have increased 3.5% year-over-year to $67.06 billion in the third quarter ended September 30, 2020. This can be attributed to an 8.8% and 5.9% increase in revenues generated by Health Care Benefits and Retail/ LTC segments, respectively, over this period. Its operating income has risen nearly 11% from the prior year quarter to $3.25 billion.
In December, CVS announced cash tender offers to repurchase multiple senior note issue. The company plans to reduce its debt burden through this offering, thereby strengthening its balance sheet and market credibility. CVS has partnered with central and state governments to execute vaccination drives in long-term care facilities for senior citizens. As of January 25, CVS had completed vaccination drives at 8,000 skilled nursing facilities across the country. As one of the biggest pharmaceutical chains in the U.S. , CVS is expected to remain in the limelight over the next couple of months as the mass vaccination drive moves into full swing.
Analysts expect CVS’ EPS to rise slightly in fiscal 2021, and at a rate of 4.6% per annum over the next five years. The company beat the Street’s EPS estimates in each of the trailing four quarters, which is impressive. A consensus revenue estimate of $278.32 billion for the current year represents a 3.9% improvement year-over-year.
CVS has gained more than 35% since hitting its 52-week low of $52.04 in March last year. The stock is currently trading 7.5% below its 52-week high of $77.23, which it hit on December 1, 2020.
CVS has an overall rating of B, which equates to Buy in our proprietary rating system. It has a Value Grade of A, Momentum Grade of B, and Stability Grade of B. The POWR Ratings are calculated by considering 118 different factors.
In total, we rate CVS on 8 different levels. Our proprietary rating system evaluates each stock in a total of eight different categories. Get all of CVS’ ratings (Growth, Industry, Quality and Sentiment) here.
O’Reilly Automotive, Inc. (ORLY)
ORLY sells automotive parts, supplies and other ancillary equipment to do-it-yourself (DIY) customers and professional service providers. The company maintains a strong, nationwide retail presence, with more than 5,000 operational stores.
As social distancing protocols increased the demand for personal vehicles worldwide, as people shied away from public transportation, ORLY saw an inflow of orders across its stores. Also, the remote working culture and lifestyle has freed up a time for people to undertake personal projects, thereby boosting ORLY’s product sales for DIY customers.
ORLY’s total sales have increased 20.3% year-over-year to $3.21 billion in the third quarter ended September 30, 2020. Its gross profits have risen 18% from the year-ago value to $1.68 billion, while its net income grew 35% versus the same period last year to $136 million. Its EPS rose 39% from the prior-year quarter to $7.07 over this period.
The auto parts aftermarket has proven to be more resilient than the new car industry amid the recession. This is because a lower per capita income resulting from economic slowdown has forced people to upgrade their old vehicles rather than buy new ones, given the cost-effectiveness of the former. While people are expected to shift from public transport to personal vehicles given the healthcare risks, the demand for economical auto parts is expected to soar in the near future, driving ORLY’s momentum over this period.
A consensus EPS estimate of $5.09 for the fourth quarter ended December 2020 represents a 19.8% rise year-over-year. Moreover, ORLY beat the Street’s EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $2.77 billion for the about-to-be-reported quarter represents an 11.7% improvement from its year-ago value.
ORLY has gained more than 70% since hitting its 52-week low of $251.52 in last March. The stock hit its 52-week high of $496.61 on December 1, 2020.
It is no surprise that ORLY has an overall rating of B, which equates to a Buy in our POWR Ratings system. It has a grade of A for both Quality and Industry, and B for Momentum. ORLY is ranked #20 out of 48 stocks in the Auto Parts industry.
The POWR Ratings are calculated by considering 118 different factors. Click here to see additional POWR Ratings for ORLY (Value, Growth, Stability, Sentiment).
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WMT shares were trading at $140.77 per share on Tuesday afternoon, up $1.50 (+1.08%). Year-to-date, WMT has declined -2.34%, versus a 2.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…