With inflation still well above the Fed’s target, the stock market is expected to remain under pressure as concerns grow that more interest rate hikes will be needed. Amid rising odds of a recession Large-cap stocks could be safer picks due to their low volatility and ability to generate stable cash flows, irrespective of economic conditions.
I believe UnitedHealth Group Incorporated (UNH), Walmart Inc. (WMT) and Cisco Systems, Inc. (CSCO) are the best large-cap stocks to own in 2023. These stocks might help survive a market downturn.
As the labor market show resiliency, Federal Reserve Chairman Jerome Powell has warned that interest rates are likely to rise higher than policymakers had earlier anticipated. Moreover, he also stated, “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
According to TS Lombard Chief U.S. Economist Steven Blitz, the Federal Reserve cannot break its cycle of interest rate increases until the nation enters a recession.
So, lets discuss the stocks mentioned above in detail.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company. The company operates through four segments: Optum Health; OptumInsight; OptumRx; and UnitedHealthcare. It offers consumer-oriented health benefit plans and services, software and information products, health care coverage, and well-being services. UNH has a market capitalization of $433.69 billion.
UNH’s forward EV/Sales of 1.34x is 65% lower than the industry average of 3.82x. Its forward EV/EBIT of 15.07x is 6.2% lower than the industry average of 16.07x.
UNH has paid dividends for 20 consecutive years. Over the last three years, UNH’s dividend payouts have grown at 15.2% CAGR. While UNH’s four-year average dividend yield is 1.36%, Its forward annual dividend of $6.60 translates to a 1.38% yield.
UNH’s trailing-12-month EBITDA margin of 9.51% is 180.7% higher than the industry average of 3.39%. Its trailing-12-month ROCE is 26.91% compared to the industry average of negative 40%.
UNH’s total revenues increased 12.3% year-over-year to $82.79 billion for the fiscal fourth quarter that ended December 31, 2022. In addition, its adjusted net earnings and EPS came in at $5.06 billion and $5.34, up 18.1% and 19.2% year-over-year, respectively.
UNH’s revenue is expected to increase by 11% year-over-year to $359.73 billion in 2024. Its EPS is expected to grow 12.4% year-over-year to $24.94 in 2024. It surpassed EPS estimates in all four trailing quarters. UNH’s shares have lost marginally intraday to close the last trading session at $464.91.
UNH’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UNH has a B grade for Growth, Stability, Sentiment and Quality. Within the A-rated Medical - Health Insurance industry, it is ranked #3 out of 10 stocks. Click here for the additional POWR Ratings for Value and Momentum for UNH.
Walmart Inc. (WMT)
Retail giant WMT operates supercentres, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, membership-only warehouse clubs, and e-commerce websites, including walmart.com and Walmart.com.mx flipkart.com, and others.
The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club. WMT has a market capitalization of $369.92 billion.
On February 28, 2023, WMT partnered with Citi to bring the Bridge developed by Citi® platform to its 10,000 US-based SME customers (SMBs). WMT’s suppliers can get more cash by employing this platform, which connects them to a network of over 70 lenders, including 20+ different financial institutions. This should boost the company’s long-term growth prospects.
WMT’s trailing-12-month EV/Sales of 0.69x is 59.5% lower than the industry average of 1.69x. Its trailing-12-month Price/Sales of 0.59x is 46.9% lower than the industry average of 1.12x.
WMT has paid dividends for 49 consecutive years. Over the last three years, WMT’s dividend payouts have grown at 1.9% CAGR. WMT’s four-year average dividend yield is 1.67%. Its forward annual dividend of $2.24 translates to a 1.65% yield.
Its trailing-12-month ROCE of 14.60% is 48.2% higher than the industry average of 9.85%. Its trailing-12-month ROTA of 4.80% is 25.7% higher than the industry average of 3.82%.
For the fiscal fourth quarter that ended January 31, 2023, WMT’s total revenues came in at $164.05 billion, up 7.3% year-over-year. Its adjusted operating income grew 6.3% from the year-ago value to $6.37 billion. Also, the company’s net income stood at $6.28 billion, up 76.2% year-over-year. Its adjusted EPS came in at $1.71, representing an increase of 11.8% year-over-year.
The consensus revenue estimate of $631.35 billion for the fiscal year 2024 indicates a 3.3% increase year-over-year. Its EPS is expected to grow 3.7% per annum for the next five years. It surpassed EPS estimates in three of four trailing quarters. Over the past nine months, the stock has gained 13.3% to close the last trading session at $137.17.
WMT’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It has an A grade for Stability and a B grade for Growth, Value, Sentiment and Quality.
It is ranked #4 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry. For additional POWR Ratings for Momentum for WMT, click here.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry. In addition, it provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products. CSCO has a market capitalization of $199.92 billion.
On February 27,2023, CSCO and Mercedes-Benz have entered into a partnership to provide the best mobile office experience in the brand-new Mercedes-Benz E Class vehicles.
CSCO’s Executive Vice President & General Manager, Security & Collaboration, Jeetu Patel, said, “The mobile office cannot progress without the reliable and secure collaboration technology that only Cisco can provide. This partnership with Mercedes-Benz, a leader in automotive luxury, marks a big step forward in delivering the flexibility that the hybrid workforce demands.”
CSCO’s forward EV/EBITDA of 9.21x is 28% lower than the industry average of 12.78x. Its forward EV/EBIT of 10.04x is 39.7% lower than the industry average of 16.64x.
CSCO has paid dividends for 11 consecutive years. Over the last three years, CSCO’s dividend payouts have grown at 2.8% CAGR. CSCO’s four-year average dividend yield is 3%. Its forward annual dividend of $1.56 translates to a 3.20% yield.
CSCO’s trailing-12-month gross profit margin of 61.92% is 26.5% higher than the industry average of 48.97%. Its trailing-12-month EBIT margin of 26.58% is 352% higher than the industry average of 5.88%.
CSCO’s total revenues have increased 6.9% year-over-year to $13.59 billion for the second quarter ended January 28, 2023. Its gross margin came in at $8.43 billion, up 4.7% year-over-year. The company’s non-GAAP net income increased 2.6% year-over-year to $3.64 billion, while its adjusted EPS came in at $0.88, representing an increase of 4.8% year-over-year.
Street expects CSCO’s revenue to increase 9.7% year-over-year to $56.54 billion in 2023. Its EPS is estimated to increase by 11.6% year-over-year to $3.75 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past three months, the stock has gained 10.3% to close the last trading session at $48.81.
CSCO’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which indicates a Strong Buy in our proprietary rating system. It also has an A grade for Quality and a B for Stability.
CSCO is ranked #3 out of 49 stocks in the B-rated Technology - Communication/Networking industry. To see additional POWR Ratings for Value, Sentiment, Momentum, and Growth for CSCO, click here.
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UNH shares were trading at $467.83 per share on Friday morning, up $2.92 (+0.63%). Year-to-date, UNH has declined -11.76%, versus a 1.63% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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