5 Resilient Stocks to Own During a Market Downturn

The stock market closed the last trading session of May in the red, underscoring inflation fears and rising oil prices. Furthermore, strategists expect the broad market to decline further, given the inflationary pressures and the Fed’s monetary tightening. Hence, we think stocks that have outpaced the broader market so far this year—among them UBS Group (UBS), AT&T (T), Vale S.A. (VALE), Merck (MRK), and Canon (CAJ)—might be solid bets. Read on.

The stock market ended the last month on a volatile note. On the last trading day of the month, the benchmark indices closed in the red after last week’s rally. The Dow Jones Industrial Average lost 0.7%, the S&P 500 declined 0.6%, and the tech-heavy Nasdaq Composite fell 0.4%. The performances underscore inflation fears and oil market pressures.

In addition, Morgan Stanley (MS) analysts have predicted that last week’s relief rally has limited scope, at least until the risks fade. Market strategist Michael Wilson sees the S&P declining close to 3,400 by the end of the second-quarter earnings season in mid-August, which would mark an approximate 18% retreat from current levels due to inflation and the Fed’s aggressive remedy for it.

Given this backdrop, we think the stocks of fundamentally sound companies UBS Group AG (UBS), AT&T Inc. (T), Vale S.A. (VALE), Merck & Co., Inc. (MRK), and Canon Inc. (CAJ) might be solid bets for building a resilient portfolio. These stocks have outperformed the S&P 500’s 13.3% decline year-to-date.

UBS Group AG (UBS)

Based in Zurich, Switzerland, UBS operates as a financial advisor and solutions provider for private, institutional, and corporate clients. The company operates through the four broad divisions of Global Wealth Management; Personal & Corporate Banking; Asset Management; and Investment Bank.

On March 30, UBS Wealth Management USA announced its new branch office locations in Greenwich and Stamford in Connecticut. This is expected to bolster the company’s operational capability and help deliver premier wealth management advice and service.

For its fiscal first quarter, ended March 31, UBS’ total operating income increased 7.6% year-over-year to $9.36 billion. Its net profit attributable to shareholders rose 17.1% from the prior-year quarter to $2.14 billion. And its EPS improved 24.5% from the same period in the prior year to $0.61.

The $2.36 consensus EPS estimate for its fiscal year 2022 indicates an 11.8% year-over-year increase. And the $36.61 billion consensus revenue estimate for the same year reflects a 2.4% improvement from the prior year.

The stock has gained 5.6% in price year-to-date and 12.1% over the past month to close yesterday’s trading session at $18.87.

UBS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

UBS has a Value, Momentum, Stability, and Sentiment grade of B. In the 95-stock Foreign Banks industry, it is ranked #9. The industry is rated B.

Click here to see the additional POWR Ratings for UBS (Growth and Quality).

AT&T Inc. (T)

Dallas, Tex.-based T is a telecommunication, media, and telecommunication services global provider. The company operates through the Communications and Latin America segments. It operates AT&T, Cricket, AT&T PREPAID, AT&T Fiber, and Unefon brand names.

On May 12, the town of Boonville, Ind., announced a $4.4 million project with T to r build its fiber network for more than 4,000 customer locations throughout the city. The network is expected to be completed 18 months after the signing of the final agreement.

On May 10, T launched its location-based routing for the automatic transmission of wireless 9-1-1 calls to the appropriate 9-1-1 call centers on a nationwide basis. The country-wide rollout of the offering is expected to be completed by the end of June.

T’s net cash provided by financing activities increased 31.2% year-over-year to $24.25 billion in its fiscal first quarter of 2022. The company’s cash, cash equivalents, and restricted cash balance came in at $38.65 billion, registering a 238.2% improvement from the prior-year quarter.

T’s stock has gained 14.6% in price year-to-date and 12.9% over the past month to close yesterday’s trading session at $21.29.

T has an overall B rating, which translates to Buy in our POWR Rating system.

It is ranked #5 out of the 21 stocks in the Telecom – Domestic industry.

To see the POWR Ratings for T, click here.

Vale S.A. (VALE)

VALE, which is headquartered in Rio de Janeiro, Brazil, operates as a producer and seller of iron ore and iron ore pellets for use as raw materials in steelmaking internationally. The company operates through the broad segments of Ferrous Minerals and Base Metals segments.

On May 16, VALE announced the conclusion of its buyback program for its common shares, with 200 million shares repurchased. The company also announced the start to its new buyback program, which is limited to 500 million common shares and their respective ADRs. The new program will be implemented over the next 18 months and might bolster shareholder returns.

On May 6, VALE confirmed that it had signed a long-term contract with Tesla Inc. (TSLA) for the supply of Class 1 nickel in the United States from its Canada operations. Deshnee Naidoo, VALE’s Executive Vice President of Base Metals, said, “This agreement reflects a shared commitment to sustainability and shows very clearly we are the supplier-of-choice for low-carbon and high purity nickel products essential for long-range batteries.”

For its fiscal first quarter of 2022, VALE’s operating income increased 85.5% sequentially to $6.60 billion. Its income before income taxes improved 14% from the prior quarter to $6.57 billion.

The Street’s $1.10 EPS estimate for the quarter ending Sept.30,  2022, indicates a 44.7% year-over-year increase.

The stock has gained 28.7% in price year-to-date and 6.9% over the past month to close yesterday’s trading session at $18.05.

This promising prospect is reflected in VALE’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

VALE has an A grade for Quality and a B grade for Value and Sentiment. In the 38-stock Industrial – Metals industry, it is ranked #7.

Click here to see the additional POWR Ratings for Growth, Momentum, and Stability for VALE.

Click here to check out our Industrial Sector Report for 2022

Merck & Co., Inc. (MRK)

MRK is a global healthcare company operating through Pharmaceuticals and Animal Health segments. Its pharmaceuticals segment markets human health pharmaceuticals and vaccines, while the Animal Health segment offers veterinary pharmaceuticals, vaccines, and monitoring products. The company is headquartered in Kenilworth, N.J.

On May 24, MRK declared a $0.69 quarterly dividend per share of its common stock for the third quarter of 2022, payable to shareholders on July 8. This reflects on the company’s ability in cash generation and shareholder returns.

On May 24, MRK announced that the European Commission had approved KEYTRUDA, MRK’s anti-PD-1 therapy in combination with chemotherapy as treatment after surgery for adults with locally advanced or early-stage triple-negative breast cancer (TNBC). In April, it was approved for treating microsatellite instability-high (MSI-H) or deficient mismatch repair (dMMR) tumors in adults. These approvals allow the marketing of the KEYTRUDA regimen and monotherapy in all 27 European Union member states plus Iceland, Lichtenstein, Norway, and Northern Ireland, which might bolster the company’s revenues.

For its fiscal first quarter of 2022, MRK's sales were up 49.6% year-over-year to $15.90 billion. Its non-GAAP net income, which excludes certain items, improved 84.2% from the prior-year quarter to $5.43 billion. And its non-GAAP EPS, which excludes certain items, increased 84.5% from the same period the prior year to $2.14.

The Street expects MRK’s EPS to improve 29.8% year-over-year to $1.70 for the quarter ending June 30, 2022, while the Street’s $13.90 billion  revenue estimate for the same quarter indicates a 21.9% rise from the prior-year quarter. In addition, MRK has topped consensus EPS estimates in three of the trailing four quarters.

The stock has gained 20.1% in price year-to-date to close yesterday’s trading session at $92.03. MRK has gained 3.8% over the past month.

It is no surprise that MRK has an overall A rating, which translates to Strong Buy in our POWR Rating system.

MRK has a Growth grade of A and a Value, Stability, Sentiment, and Quality grade of B. In the 166-stock Medical – Pharmaceuticals industry, it is ranked #1.

To see the additional POWR Rating for Momentum for MRK, click here.

Click here to checkout our Healthcare Sector Report for 2022

Canon Inc. (CAJ)

CAJ, headquartered in Tokyo, Japan, produces and sells office multifunction devices (MFDs), plain paper copying machines, laser and inkjet printers, cameras, and diagnostic equipment. The company operates through the four broad segments Printing Business Unit; Imaging Business Unit; Medical Business Unit; and Industrial and Others Business Unit.

On May 26, CAJ subsidiary Canon U.S.A., Inc. announced three new Canon models with enhancements, and with units expected to begin shipping in early June. On May 24, Canon U.S.A. announced the launch of its EOS R7 and EOS R10 camera bodies. The new products should add to the company’s revenue stream.

CAJ’s net sales increased 4.4% year-over-year to ¥879.35 billion ($6.85 billion) in its  fiscal first quarter, ended March 31. Its operating profit and net income attributable to CAJ came in at ¥76.14 billion ($593.13 million) and ¥45.98 billion ($358.15 million), respectively, up 7.9% and 3.4% from the prior-year period.

The $2.00 consensus EPS estimate of $2.00 for its fiscal year 2022 reflects a 7% year-over-year improvement.

CAJ’s shares have gained 3.9% in price year-to-date and 10.5% over the past month to close yesterday’s trading session at $25.39.

CAJ has an overall B rating, which equates to Buy in our proprietary rating system.

CAJ has a B grade for Stability and Quality. It is ranked #7  of the 45 stocks in the Technology – Hardware industry.

In addition to the POWR Rating grades we have stated above, one can see CAJ ratings for Growth, Value, Momentum, and Sentiment here.

UBS shares rose $0.03 (+0.16%) in premarket trading Wednesday. Year-to-date, UBS has gained 6.70%, versus a -12.35% 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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