With energy prices increasing rapidly, recessionary concerns are rising. In addition, another recessionary indicator, the, i.e., the difference between short-term government bond yields and long-term bond rates is narrowing, and investors worry that the yield curve could eventually invert. An inverted yield curve has often been a potential recession signal.
Furthermore, Goldman Sachs Group Inc. (GS) has downgraded its growth outlook for the United States economy and has raised the possibility of a recession. Jan Hatzius, GS’ chief economist, said, “And we now see the risk that the U.S. enters a recession during the next year as broadly in line with the 20% to 35% odds currently implied by models based on the slope of the yield curve.”
Given this backdrop, we believe the seemingly sturdy stocks BHP Group Limited (BHP), Lockheed Martin Corporation (LMT), and Snap-on Incorporated (SNA) might be ideal bets.
BHP Group Limited (BHP)
BHP in Melbourne, Australia, is engaged in natural resource businesses regarding minerals, oil, and gas. It is divided into Petroleum; Copper; Iron Ore; and Coal segments. On February 7, BHP announced that it was extending its partnership focused upon low carbon iron and steelmaking with the Centre for Ironmaking Materials Research (CIMR) at the University of Newcastle. Dr. Rod Dukino, BHP VP Sales & Marketing Iron Ore, said, “The expanded research program with the University of Newcastle complements BHP’s existing partnerships with our key steelmaking customers in China, Japan, and South Korea. We are pursuing the long-term goal of net-zero Scope 3 greenhouse gas emissions by 2050.”
BHP welcomed MV Mt. Tourmaline on the same day, an LNG-fueled Newcastlemax bulk carrier set to transport iron ore between Western Australia and Asia beginning this year. . The new carrier is expected to improve energy efficiency and emissions intensity.
For its fiscal half-year, ended December 31, BHP’s revenue from continuing operations increased 27% year-over-year to $30.53 billion. Its profit from operations rose 50.1% from the prior-year period to $14.85 billion, while its earnings per ordinary share came in at 186.20 cents, up 143.4% from the same period the prior year.
The $63.34 billion consensus revenue estimate for its fiscal year ending June 30, 2022, indicates a 4.1% year-over-year increase.
The stock has gained 12.2% in price over the past six months and 13.6% year-to-date to close Friday’s trading session at $68.55.
BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
BHP has a Quality grade of A and a Value and Stability grade of B. In the 36-stock Industrial – Metals industry, it is ranked #2.
Click here to see the additional POWR Ratings for BHP (Growth, Momentum, and Sentiment).
Click here to check out our Industrial Sector Report for 2022
Lockheed Martin Corporation (LMT)
LMT is a security and aerospace company that operates as a researcher, designer, developer, and manufacturer of technology systems, products, and services. The North Bethesda, Md., company has four segments of Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
On March 1, it was reported that the Geostationary Operational Environmental Satellite (GOES-T), an advanced weather satellite built by LMT, was successfully launched from Florida’s Space Coast. This reflects upon the future of the company’s continuing partnerships with NASA and NOAA.
On January 27, LMT announced a first-quarter dividend of $2.80 per share, payable to shareholders on March 25. This reflects upon the company’s ability to pay back its shareholders.
LMT’s net sales increased 4.1% year-over-year to $17.73 billion in its fiscal fourth quarter, ended December 31. Its net earnings rose 14.3% from the prior-year quarter to $2.05 billion. Its earnings per common share came in at $7.47, up 17.1% from the same period the prior year.
Analysts expect LMT’s EPS to increase 5.6% year-over-year to $28.10 for its fiscal year 2023. Also, the Street expects its revenue to improve 2.2% from the prior year to $67.60 billion for the same year. In addition, LMT has topped consensus EPS estimates in three out of the trailing four quarters.
Over the past year, the stock has gained 29.1% in price to close Friday’s trading session at $439.04. It has gained 23.5% year-to-date.
It is no surprise that LMT has an overall A rating, which translates to Strong Buy in our POWR Rating system.
LMT has a B grade for Value, Stability, Sentiment, and Quality. It is ranked #3 of 73 stocks in the Air/Defense Services industry.
To see the additional POWR Ratings for Growth and Momentum, click here.
Snap-on Incorporated (SNA)
SNA in Kenosha, Wisc., is a manufacturer and marketer of tools, equipment, diagnostics, and repair information and systems solutions for professional users globally. The company operates through its Commercial & Industrial Group; Snap-on Tools Group; Repair Systems & Information Group; and Financial Services segments.
On Feb. 10, SNA announced a $1.42 per share quarterly dividend, which was payable on March 10. This reflects upon the company’s ability in cash generation and its ability to pay back shareholders.
For its fiscal fourth quarter of 2021, SNA’s net sales increased 3.2% year-over-year to $1.11 billion. Its gross profit rose 3.3% from the prior-year period to $533.40 million. Its net earnings attributable to SNA and net earnings per share attributable to SNA stood at $223.70 million and $4.10, up 7.1% and 7.3% from the same period the prior year, respectively.
The $3.69 consensus EPS estimate for its fiscal quarter ending March 2022 indicates a 5.4% year-over-year increase. And the $1.07 billion consensus revenue estimate for the same period reflects an improvement of 15.1% from the prior-year quarter. Furthermore, SNA has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
SNA’s shares have gained marginally over the past five days to close Friday’s trading session at $205.70.
This promising outlook is reflected in SNA’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
SNA has a Quality grade of A and a Value and Stability grade of B. In the 65-stock Home Improvement & Goods industry, it is ranked #6.
In addition to the POWR Rating grades we have stated above, one can see SNA ratings for Growth, Momentum, and Sentiment here.
BHP shares were trading at $65.30 per share on Monday afternoon, down $3.25 (-4.74%). Year-to-date, BHP has gained 13.14%, versus a -12.11% 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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