The stock market posted modest gains on Friday to start the second half of this year. However, the Dow was down 1.3% last week, the S&P 500 fell 2.2%, and the Nasdaq Composite dropped 4.1%. Investors are now waiting for the June jobs report this Friday.
On the other hand, JPMorgan Chase & Co. (JPM) has predicted that investors might enjoy higher returns in the second half as inflation rates lower and the U.S. economy avoids a recession.
Moreover, some analysts are predicting interest rates to fall in the near future. As the rate hikes risk putting the economy into a stagflation-like situation, they become untenable. Michael Yoshikami, the founder of Destination Wealth Management, believes that the Fed will start cutting rates later this year.
Given this backdrop, we think the fundamentally strong stocks The Coca-Cola Company (KO) and The Procter & Gamble Company (PG) might be solid buys on their dips. These stocks are rated Buy in our proprietary POWR Ratings system.
The Coca-Cola Company (KO)
This global non-alcoholic beverage manufacturer sells its beverages under popular brands such as Coca-Cola, Sprite, Fanta, Dasani, Minute Maid, and Powerade.
On June 13, Brown Forman Corporation (BF.A, BF.B) and KO announced their global relationship to launch the Jack & Coke cocktail as a branded, ready-to-drink (RTD) pre-mixed cocktail option. The new product introduction is expected to add to the company’s revenue stream.
On April 27, KO declared a dividend of 44 cents per common share, which was payable to shareholders on July 1. This reflects upon the company’s cash generation ability.
KO’s non-GAAP net operating revenues increased 16.4% year-over-year to $10.50 billion for the fiscal first quarter ended April 1. Non-GAAP net income and non-GAAP net income per share stood at $2.80 billion and $0.64, up 16.6% and 16.4% from the same period the prior year, respectively.
The consensus EPS estimate of $0.66 for the quarter ending September 2022 indicates a 1.5% year-over-year increase. Likewise, the consensus revenue estimate of $10.76 billion for the same period reflects an improvement of 10.3% from the prior-year quarter. In addition, KO has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 18.8% over the past year and 8.7% year-to-date to close its last trading session at $64.38. KO is trading 4.2% lower than its 52-week high of $67.20.
KO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
KO has a B grade for Stability, Sentiment, and Quality. In the 35-stock Beverages industry, it is ranked #14. The industry is rated A. Click here to see the additional POWR Ratings for KO (Growth, Value, and Momentum).
The Procter & Gamble Company (PG)
PG is a branded consumer packaged goods provider operating in several parts of the world. The company offers beauty products under the Head & Shoulders, Herbal Essences, Pantene, Rejoice, Olay, Old Spice, Safeguard, Secret, and SK-II brands.
On June 29, restaurant brand Arby’s and PG’s Old Spice brand announced their partnership to launch a limited edition kit featuring a custom roast beef sweat suit and Old Spice Sweat Defense Dry Spray. On June 1, the launch of VÖOST, a new vitamin boost brand with eight varieties, was reported. The new products might add to the company’s revenue stream.
For the fiscal third quarter ended March 31, PG’s net sales increased 7% year-over-year to $19.38 billion. Operating income rose 6.3% from the prior-year quarter to $4.02 billion. Net earnings and net earnings per share improved 3.6% and 5.6% from the same period the prior year to $3.37 billion and $1.33.
Street EPS estimate for the quarter ended June 2022 of $1.24 indicates a 9.7% year-over-year increase. Likewise, Street revenue estimate for the same quarter of $19.48 billion reflects a rise of 2.8% from the prior-year period. Moreover, PG has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 7.5% and 2% over the past five days to close its last trading session at $146.11. It is trading 11.6% lower than its 52-week high of $165.35.
It’s no surprise that PG has an overall B rating, which translates to Buy in our POWR Ratings system. The stock has a Stability and Quality grade of B. It is ranked #5 out of the 60 stocks in the Consumer Goods industry.
To see the additional POWR Ratings for Growth, Value, Momentum, and Sentiment for PG, click here.
KO shares were trading at $63.24 per share on Tuesday afternoon, down $1.14 (-1.77%). Year-to-date, KO has gained 8.40%, versus a -19.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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