The Fed has launched a 75-basis points rate hike this month, the most aggressive rate hike in decades. Moreover, it is expected to deliver another 75-basis-point interest rate hike next month and a half-percentage-point rise in September. The aggressive rate hikes are raising recession concerns, leading to a steep sell-off in the market.
According to Morgan Stanley analysts, “At this point, a recession is no longer just a tail risk given the Fed’s predicament with inflation.” However, consumer staples and grocery stocks usually hold up well in times of recession, as they enjoy a steady demand for their products.
Given this backdrop, we think it could be wise to buy beaten-down consumer goods and grocery stocks, The Procter & Gamble Company (PG) and Walmart Inc. (WMT), which are well-positioned to survive the recession.
The Procter & Gamble Company (PG)
PG provides branded consumer packaged goods to consumers in North and Latin America, Europe, the Asia Pacific, Greater China, India, the Middle East, and Africa. It operates in five segments- Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care.
On June 8, 2022, PG and Microsoft Corp. (MSFT) announced their new multi-year collaboration, whereby MSFT will help enhance digital manufacturing at PG. The companies expect this to be a game-changer in automated manufacturing.
For the third quarter ended March 31, 2022, PG’s net sales increased 7% year-over-year to $19.38 billion. The company’s net earnings came in at $3.35 billion, up 2.6% year-over-year, while its EPS came in at $1.33, up 5.6% year-over-year. Also, its operating income rose 6.3% year-over-year to $4.02 billion.
PG’s revenue is expected to increase 5.3% year-over-year to $80.14 billion in 2022. Its EPS is expected to grow 5.3% per annum for the next five years. It surpassed EPS estimates in each of the trailing four quarters.
The stock has lost 15.3% year-to-date to close the last trading session at $138.50.
PG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PG has a B grade for Growth, Stability, and Quality. Within the Consumer Goods industry, it is ranked #5 out of 61 stocks. Click here for the additional POWR Ratings for Value, Momentum, and Sentiment for PG.
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments- Walmart U.S.; Walmart International; and Sam’s Club.
On June 16, 2022, WMT and Roku, Inc. (ROKU) announced their partnership to make TV streaming the next e-commerce shopping destination. This pioneer collaboration of streaming commerce aims to serve consumers better and has already grabbed many eyeballs.
For the first quarter ended April 30, 2022, WMT’s total revenues came in at $141.57 billion, up 2.4% year-over-year. Its total current assets came in at $83.22 billion, up 8.7% year-over-year. Also, its long-term debt decreased 20.1% year-over-year to $32.17 billion.
Analysts expect WMT’s revenue to be $595.67 billion in fiscal 2023, representing a 4% year-over-year increase. The company’s EPS is expected to rise 9.5% per annum for the next five years. In addition, it has surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has lost 16.6% year-to-date to close the last trading session at $120.69.
WMT's overall B rating equates to a Buy in our proprietary POWR Ratings system. In addition, it has a B grade for Stability.
WMT is ranked #13 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the additional POWR Ratings for WMT (Growth, Value, Momentum, Sentiment, and Quality).
PG shares were trading at $141.95 per share on Thursday afternoon, up $3.45 (+2.49%). Year-to-date, PG has declined -12.26%, versus a -19.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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