Decades of high inflation and aggressive rate hikes by the Fed could push the economy into recession. So, investors looking to cushion a market downturn should invest in Dollar Tree (DLTR) and Vertex Pharmaceuticals (VRTX), as they can deliver stable returns because their companies have nearly inelastic demand.
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General market sentiment has been bearish since the beginning of the year due to the war between Ukraine and Russia, supply chain disruption and rising energy prices. In addition, the economy has faced severe inflationary pressures, with the consumer price index rising to 8.3% in Aprilwhich exceeded the Dow Jones estimate of 8.1%.
In addition, the stock market has been witnessing a massive sell-off recently, amid concerns about the Fed’s aggressive rate hikes to combat decades-long high inflation. Investors are concerned that the Fed’s aggressive monetary policy tightening could push the economy into recession, making it difficult for companies to grow.
Against this background, we think it may be wise to bet on shares of defensive companies Dollar Tree (DLTR) and Vertex Pharmaceuticals (VRTX) due to near-inelastic demand for their products and services.
dollartree inc. †DLTR†
DLTR is a discount store that operates through two segments: Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at a fixed price of $1, and the company also offers exclusive merchandise through its online platform. It has more than 15,000 stores in the 48 contiguous states and five Canadian provinces.
On March 2, 2022, Michael Witynski, President and CEO, said, “We continue to deliver great performance on other key strategic initiatives, including expanding our $3 and $5 Plus range in Dollar Tree stores, as well as our Combo Stores and H2 Renovations. at Family Dollar.”
DLTR net sales increased 4.6% year-over-year to $7.08 billion for the fiscal fourth quarter ended January 29, 2022. Total assets grew 5% year-over-year to $21.72 billion.
For the quarter ended July 31, 2022, analysts expect DLTR’s annualized earnings per share to rise 39.8% to $1.72. It surpassed the consensus EPS estimates in three of the lagging four quarters. Annual revenue is expected to reach $27.96 billion in fiscal 2023, representing a 6.2% year-over-year increase. Over the past nine months, the stock is up 34.2%, closing yesterday’s trading session at $135.57.
DLTR’s strong foundations are reflected in its POWR ratings† The stock has an overall B rating, which is equivalent to Buy in our proprietary rating system. It has a B grade for Sentiment.
We also rated DLTR for growth, value, momentum, stability and quality. click here to access all of DLTR’s ratings. DLTR ranks 28 out of 38 stocks in the A rating Grocery/Big Box Retailers industry.
Vertex Pharmaceuticals Inc. †VRTX†
VRTX is engaged in the development and commercialization of therapies for the treatment of cystic fibrosis. The company markets SYMDEKO/SYMKEVI, ORKAMBI and KALYDECO for the treatment of patients with cystic fibrosis who have specific mutations in their transmembrane conduction regulator gene for cystic fibrosis.
On May 17, 2022, VRTX announced plans to build another 344,000-square-foot facility in the seaport to support continued rapid growth, particularly expanding its cell and genetic therapy programs. With the completion of this new site expected in 2025, Vertex will occupy 1.9 million square feet of real estate in the Seaport across five sites, making it the largest biotech in Boston in terms of square footage.
VRTX product revenue grew 18% year over year to $2.10 billion in the fiscal first quarter ended March 31, 2022. The company’s non-GAAP operating income grew 17% year over year to $1.04 billion, while non-GAAP net income came in at $907 million, up 16% year over year. Also, non-GAAP EPS came in at $3.52, up 18% year over year.
For the quarter ended December 31, 2021, analysts expect VRTX’s annualized earnings per share and revenue to grow 15.5% and 18.9% to $3.59 and $2.13 billion, respectively. In addition, it surpassed Street EPS estimates in each of the lagging four quarters. Over the past six months, the stock is up 39.7% to close yesterday’s trading session at USD 255.45.
VRTX’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a strong buy in our proprietary rating system. The stock has an A rating for quality and a B rating for value, sentiment and growth.
Within the Biotechnology industry, VRTX ranks #1 out of 395 stocks. click here to see the additional POWR ratings for VRTX (stability and momentum).
DLTR shares traded at $127.88 a share Friday afternoon, down $7.69 (-5.67%). Year-to-date, the DLTR is down -9.00%, compared to a -17.71% increase in the benchmark S&P 500 index over the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in determining the price of a stock is the main approach he takes in advising investors in his articles.
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