Equity markets rallied into the close on Friday following the release of positive consumer spending data, but the bounce was not enough to keep the major indexes out of the red for the week. Disappointing earnings results from big banks and alarming inflation data contributed to the early week declines. For the week, the Dow lost 0.2%, the S&P 500 shed 0.9%, and the Nasdaq declined 1.6%.
The Treasury yield curve inversion also deepened, with the 2-year yield at around 3.13% on Friday, above the 10-year at 2.93%. An inversion in the yield curve is often seen as a sign of economic trouble just around the corner, as such inversions have often preceded past recessions.
Corporate earnings will take center stage this week, with more financial firms reporting on Monday, including Charles Schwab, Bank of America, and Goldman Sachs. Later in the week, healthcare giants Johnson & Johnson and Novartis will report along with highly anticipated releases from Netflix and Tesla. Investors will be looking for clues on how skyrocketing inflation has affected companies’ bottom lines. We can also expect essential updates on the U.S. housing market, with June housing stats and building permits on Tuesday, followed by existing home sales on Wednesday.
Our team has three recommendations of stocks to add to your watchlist this week, including a name that should appeal to anyone seeking defensive growth in the face of a looming recession. Plus, we’ve got a desirable ticker that seems to have recently entered oversold territory.
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Traditionally one of the most stable and recession-resistant sectors, everyone needs healthcare at some point regardless of income status. “The defensive aspects of the sector, while not fully appreciated at times over the past few years, is beginning to kick-in in a rather meaningful way,” said Jared Holz, a healthcare strategist at Oppenheimer.
A name offering defensive growth from the desirable sector currently is UnitedHealth Group (UNH). As the most significant health insurance company by market cap and market share, UNH’s size gives it built-in advantages over peers in the group.
Despite the market sell-off this year, UNH’s share price is up 3%, outperforming its peers and the broader market. The Health Care Select Sector SPDR Fund (XLV) is down 6.5% YTD, while the S&P 500 is down nearly 20%.
UnitedHealth reported double-digit revenue growth for 2021. Full-year revenue was listed at $287.6 billion, up 11.8% yearly. Full-year EPS increased from $16.03 in 2020 to $18.08. Momentum should be supported in the coming years thanks to UNH’s strong market position and attractive core business. Its expansion of international business provides substantial diversification benefits and shields against the impact of tightening U.S. regulations while allowing the Dow giant to tap into the $8.3 trillion spent annually on global healthcare. The company expects annual 2022 revenue of between $317 and $320 billion, the median of which implies an 11% upside year over year.
UnitedHealth has exceeded consensus expectations when it comes to both earnings and revenue for the past four consecutive quarters. The company also has a solid history of rewarding investors with a steady paycheck. UNH went to a quarterly dividend in 2010 and, since then, has increased its dividend every year. That includes a 16% bump last year to $1.65 a share, which works out to a yield of 1.28% at its current price. The payout has increased 31% over the past five years, and the stock has a 5-year annualized dividend growth rate of 19%. The stock looks like a value at about 28 times earnings, compared to the healthcare industry, where the average P/E is 37.
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Chicago-based IT provider for the healthcare sector Allscripts Healthcare Solutions, Inc. (MDRX) is well poised for growth in the coming years on the tails of a recurring revenue business model in a specialized customer segment. The vendor of electronic health record systems also has a bevy of strategic alliances that should help support upward momentum, such as its partnerships with Microsoft and Humana. Most recently, its partnership with Lyft to deliver on-demand and scheduled patient transportation to and from healthcare settings is expected to expand Allscript’s reach in late 2022.
The company logged solid year-over-year revenue and earnings gains in the first quarter of 2022, reporting $143 million in revenue compared with $134 million in the first quarter of 2021. Non-GAAP diluted earnings per share in the first quarter came in at $0.13 compared with $0.08 in the first quarter last year.
This week MDRX traded as low as $13.99 per share to close Friday at $14.66 with a Relative Strength Index reading of 29.08. An RSI below 30 is a popular indicator that a stock has potentially entered into oversold territory. Over the past year, MDRX has lost 15.5%, outperforming the industry, which has lost 46% over the same period. The 8 analysts offering 12-month price forecasts for the stock have a median target of 21.50, representing a 47% increase from Friday’s closing price.
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Leading provider of distilled branded spirits and specialty food ingredients MGP Ingredients Inc. (MGPI) recently logged a record-breaking 2021 and appears to be primed for building on that strength in 2022.
“Our record performance this year demonstrated the strength of our business model and the value each of our segments bring to our global customer base,” said David Colo, president, and CEO of MGP Ingredients.
Many know MGP as an opportunity to invest in branded spirits, but an often overlooked feature of the company is its involvement in the burgeoning plant-based protein movement, a market anticipated to grow at a CAGR of 11.2% from 2020 to 2027 to reach $27.05 billion by 2027. The company launched its line of non-GMO texturized proteins Proterra in 2020 and has been strategically building the name since.
The most recent developments are plans for a $16.7M extrusion plant expected to produce up to 10M pounds of ProTerra annually. “Achieving in-house production of our ProTerra line of products is a meaningful investment amid growing demand and increasing outsourcing costs,” said MGP’s CEO. The extrusions plant isn’t the only project MGP has in the wings. The company has expansionary projects totaling approximately $33 million over the next two years.
Lake Street analyst Ben Klieve recently initiated coverage of MGP with a Buy rating and a $100 price target. The analyst views the stock as a “compelling investment” for those looking for undervalued, branded spirit opportunities in a high multiple category and those seeking to capitalize on the plant-based protein movement without the risk of directly investing in specific brands.
The company raised its 2022 guidance. It now sees EPS of $3.95-$4.10 and revenue of $690M-$715M. “We are very pleased with the momentum we ended the fiscal year on and believe we are well positioned to execute and deliver against our long-term growth strategy in fiscal 2022. We are committed to leveraging the strong foundation we’ve established over the years to position MGP for sustainable long-term growth,” concluded Colo.
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