The Federal Reserve raised interest rates by a quarter point at the FOMC’s first meeting of 2023, marking the smallest rate hike since March 2022. While Fed Chair Jerome Powell hinted at a couple more hikes, he added, “We can now say I think for the first time that the disinflationary process has started.”
Moreover, Powell is optimistic that the central bank can get inflation down to 2% “without a really significant downturn, or a really significant increase in unemployment.” He also said, “My base case is that there will be positive growth this year.”
Moreover, the U.S. job market surpassed expectations by adding an astonishing 517,000 jobs in January, indicating the economy’s underlying strength. According to CNBC’s Jim Cramer, a severe recession is "near impossible" given the strength of job growth.
Investor sentiment has improved considerably in the past few weeks. Following last year’s weak performance, the Nasdaq Composite and S&P 500 rose about 11% and 6%, respectively, in January. Last month was Nasdaq’s best month since July. Moreover, stocks further rallied following the Fed’s recent 25-basis-points rate hike.
Given the improving economic outlook, investing in fundamentally sound, The Coca-Cola Company (KO) and Archer-Daniels-Midland Company (ADM) could be wise.
The Coca-Cola Company (KO)
KO is a beverage company that operates through segments, including Europe, the Middle East, and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments. It owns and markets five non-alcoholic sparkling soft drink brands, and its products are sold in more than 200 countries.
KO’s trailing-12-month gross profit margin of 58.49% is 86.5% higher than the 31.37% industry average. Its trailing-12-month EBITDA margin of 31.96% is 186.9% higher than the 11.14% industry average. Likewise, the stock’s trailing-12-month net income of 23.44% is 475.1% higher than the industry average of 4.08%.
For the third quarter that ended September 30, 2022, KO’s net operating revenues grew 10.2% year-over-year to $11.06 billion. Its gross profit rose 7.1% from the prior year’s quarter to $6.50 billion, and its operating income increased 6.6% from the year-ago value to $3.09 billion.
Furthermore, KO’s consolidated net income stood at $2.82 billion, indicating a 14% increase year-over-year, while its EPS stood at $0.65, also up 14% from the prior year’s period.
KO has raised its dividends for 60 consecutive years. It pays a $1.76 per share dividend annually, translating to a 2.94% yield on the current price level. The company’s four-year average dividend yield is 3.06%, and its dividend payouts have grown at a 3.5% CAGR over the past five years.
Analysts expect KO’s revenue to increase 10.7% year-over-year to $42.79 billion for the fiscal year that ended December 2022. The company’s EPS for the same year is expected to rise 7.4% from the previous year to $2.49. Moreover, KO surpassed its consensus EPS in all four trailing quarters, which is impressive.
Furthermore, the company’s revenue and EPS for the current fiscal year ending December 2023 are expected to grow 3.4% and 2.7% year-over-year to $44.26 billion and $2.56, respectively. Shares of KO have declined marginally intraday to close the last trading session at $59.83.
KO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Sentiment and a B for Stability and Quality. Within the A-rated 37-stock Beverages industry, it ranks #15.
To see additional POWR Ratings for Value, Growth, and Momentum for KO, click here.
Archer-Daniels-Midland Company (ADM)
ADM sources agricultural commodities, products, and ingredients and handles transportation, storage, processing, and merchandising. Its segments include Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition. It also engages in importing, exporting, and distributing agricultural commodities and feed products.
On January 26, 2023, Chairman and CEO Juan Luciano announced that the firm is expanding investments in the decarbonization of some of its large production facilities to support the expansion of its Carbohydrate Solutions segment and is also leveraging new food technology platforms to answer shifting customer preferences and longer-term food security demands.
Moreover, the company increased its quarterly dividend by 12.5% to $0.45 per share, marking its 50th year in a row of dividend increases.
ADM pays a $1.80 per share dividend annually, which translates to a 2.19% yield on the current price level. The company’s four-year average dividend yield is 2.72%, and its dividend payments have increased at a 4.6% CAGR over the past three years.
The stock’s trailing-12-month asset turnover ratio of 2.19x is 165.7% higher than the 0.82x industry average. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 18.56%, 7.76%, and 11.72% are 78.5%, 26.1%, and 229% higher than the industry averages of 10.4%, 6.16%, and 3.56%, respectively.
For the fiscal fourth quarter that ended December 31, 2022, ADM’s total revenue increased 13.6% year-over-year to $26.23 billion, while its gross profit grew 6.8% from the year-ago value to $1.76 billion. Also, the company’s EBIT rose 20% from the prior year’s period to $1.21 billion.
Moreover, net earnings attributable to ADM increased 30.3% year-over-year to $1.02 billion, while its EPS came in at $1.84, up 33.3% year-over-year.
The consensus revenue estimate of $24.32 billion for the fiscal first quarter (ending March 2023) reflects a growth of 2.8% from the previous year’s quarter. Also, ADM surpassed its consensus EPS in all four trailing quarters. The stock has gained 8.7% over the past year to close the last trading session at $82.28.
ADM’s solid prospects are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
ADM has a B grade for Growth and Sentiment. Within the Agriculture industry, it ranks #5 of 28 stocks.
Beyond what we stated above, we also have ADM’s ratings for Value, Stability, Quality, and Momentum. Get all ADM ratings here.
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KO shares were trading at $60.00 per share on Monday afternoon, up $0.17 (+0.28%). Year-to-date, KO has declined -5.68%, versus a 7.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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