While the fast-paced economic recovery has been fueling the stock market’s positive performance, concerns over high inflation and the emergence of the Delta coronavirus variant in several corners of the globe are expected to foster market volatility in the near term. Consequently, it could be wise to bet on large-cap stocks. In addition to possessing sufficient financial resources to absorb market shocks and deliver steady returns, large-cap stocks typically benefit from their companies’ market dominance.
The IMF has revised its growth forecast for the U.S. economy to 7%, citing a stronger-than-expected rebound from the pandemic-driven downturn. This expectation should drive the performance of companies that dominate their respective industries. Investors’ interest in large-cap stocks is evident in the SPDR S&P 500 ETF Trust’s (SPY) 16.5% returns year-to-date.
We believe large cap stocks Johnson& Johnson (JNJ), Agilent Technologies, Inc. (A), and Cannon Inc. (CAJ) could be solid investments now due to their fundamental strength and long-term growth prospects.
Johnson & Johnson (JNJ)
JNJ in New Brunswick, N.J., is principally engaged in the research, development, production, and sale of a variety of healthcare products targeted at improving the health and well-being of consumers. Consumer, Pharmaceutical, and Medical Devices are the company’s three business segments. In addition, the company has received much attention in recent months because of its Janssen COVID-19 vaccine, which has become a prominent player in the COVID-19 vaccination market.
This month, JNJ released data showing that its single-shot COVID-19 vaccine has strong, long-lasting effectiveness against the quickly spreading Delta form of SARS-CoV-2 and other SARS-CoV-2 virus variants. Furthermore, the findings revealed that the immune response was durable for at least eight months, which is the longest period that COVID-19 inoculation has been studied this far.
During the first quarter, ended April 20, 2021, JNJ’s worldwide sales increased 7.9% year-over-year to $22.32 billion. Its net income increased 6.9% year-over-year to $6.20 billion, while its EPS grew 6.9% from the prior-year quarter to $2.32. Furthermore, the company’s gross profit increased 12% year-over-year to $15.26 billion over this period.
A $9.52 consensus EPS estimate for the current year represents an 18.6% improvement year-over-year. JNJ has an impressive earnings surprise history too; it beat the consensus EPS estimates in each of the trailing four quarters. The $91.3 billion consensus revenue estimate for the current year represents a 10.5% increase from the same period last year. The stock has gained 19% over the past year and 11.6% over the past nine months.
JNJ's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
JNJ is also rated an A for Stability, and a B for Growth and Sentiment. Within the Medical-Pharmaceuticals industry, it is ranked #1 of 223 stocks.
To see additional POWR Ratings for Momentum, Quality, and Value for JNJ, click here.
Click here to checkout our Healthcare Sector Report for 2021
Agilent Technologies, Inc. (A)
A provides application-focused solutions for the laboratory workflow, which includes instruments, software, services, and consumables. The Santa Clara, Calif.-based company caters to the life sciences, diagnostics, and applied chemistry markets. Life sciences and applied markets, diagnostics and genomics, and Agilent CrossLab are the three segments through which the company operates.
Last month, A launched three InfinityLab Bio LC systems designed exclusively for the biopharma industry. Therelease is in line with the company’s Bio LC offering, which includes instruments, columns, and supplies that work seamlessly with its OpenLab and MassHunter software, as well as CrossLab services to help biopharma labs run more efficiently.
During its second fiscal quarter, ended April 30, 2021, A's net revenue increased 23.2% year-over-year to $1.53 billion. The company’s operating income increased 182.4% year-over-year to $288 million, while its non-GAAP net income grew 34.1% from the prior-year quarter to $299 million. Its revenues under its diagnostics and genomics segment increased 19.8% year-over-year to $315 million over this period.
A is expected to generate 16.5% revenue growth of 16.5% for the current year. Its EPS is estimated to increase 26.2% year-over-year to $4.14 in 2021. Also, the stock beat consensus EPS estimates in each of the trailing four quarters. Over the past year, A's stock has gained 67.2%. Furthermore, it has gained 26.2% year-to-date.
A’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has a B grade for Value, Growth, and Stability. In the Medical-Diagnostic/Research industry, it is ranked #3 of 55 stocks.
In total, we rate A on eight different levels. Beyond what we've stated above, we have also given A grades for Sentiment, Momentum, and Quality. Get all the A ratings here.
Click here to checkout our Healthcare Sector Report for 2021
Canon Inc. (CAJ)
CAJ, a leader in digital imaging solutions, specializes in the development, manufacture, and sale of office equipment, imaging systems, medical systems, industrial equipment, and related services. The Tokyo-based company’s four business segments are: Office, Imaging System, Medical System, and Industry and Others.
Last month, CAJ launched its RF14-35mm F4 L IS USM lens. The new lens is the broadest ever in the CAJ wide-angle zoom for full-frame AF cameras, in addition to its ultra-wide capabilities. The company’s new wide-angle lens can help users improve their content.
Also, this month, CAJ unveiled its imageRUNNER ADVANCE DX C568iF, a new imageRUNNER ADVANCE DX C568iF. The new models, which are available in desktop and freestanding configurations, are designed to provide high-efficiency, productive scanning as well as help users create clear text and consistent images at high print speeds.
CAJ's net sales increased 7.7% year-over-year to ¥842.65 billion ($7.65 billion) in the first quarter, ended March 31, 2021. Its net operating income surged 114.6% year-over-year to ¥70.56 billion ($640.70 million). The company's net income increased 102.9% from its year-ago value to ¥44.45 billion ($403.63 million) over this period. EPS increased 105.5% year-over-year to ¥42.50 ($0.38).
The company's EPS is expected to grow 98.6% year-over-year to $1.47 in the current year. Analysts expect CAJ's revenue to increase 8.1% to $31.99 billion in its fiscal year 2021. CAJ's stock has gained 19.2% over the past year and 42.6% over the past nine months.
It is no surprise that CAJ has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has a B grade for Growth, Value, and Stability. In the B-rated Technology-Hardware industry, it is ranked #1 of 45 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see the CAJ rating for Momentum, Quality, and Sentiment here.
JNJ shares were trading at $169.17 per share on Tuesday morning, down $0.31 (-0.18%). Year-to-date, JNJ has gained 8.84%, versus a 17.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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