Multi-decade-high inflation and aggressive Fed rate increases might push the economy into a recession. So, investors looking to mitigate a market downturn should invest in Dollar Tree (DLTR) and Vertex Pharmaceuticals (VRTX), as they could deliver stable returns because their businesses enjoy a near-inelastic demand.
The overall 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 been under severe inflationary stress, with the Consumer Price Index rising to 8.3% in April, which came higher than the Dow Jones estimate of 8.1%.
Moreover, the stock market has been witnessing a massive sell-off lately, on concerns over the Fed’s aggressive interest rate hikes to fight the multi-decade-high inflation. Investors are worried that the Fed’s aggressive monetary policy tightening could push the economy into a recession, making it difficult for businesses to grow.
Given this backdrop, we think it could be wise to bet on shares of defensive companies Dollar Tree (DLTR) and Vertex Pharmaceuticals (VRTX) because of the near inelastic demand for their products and services.
Dollar Tree Inc. (DLTR)
DLTR is a discount variety retail 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 across the 48 contiguous states and five Canadian provinces.
On March 2, 2022, Michael Witynski, President and CEO, said, “We continue to have terrific performance on other key strategic initiatives, including the expansion of our $3 and $5 Plus assortment in Dollar Tree stores, as well as our Combo Stores and H2 Renovations at Family Dollar.”
DLTR’s net sales increased 4.6% year-over-year to $7.08 billion for the fiscal fourth quarter ended January 29, 2022. Its total assets grew 5% year-over-year to $21.72 billion.
For the quarter ending July 31, 2022, analysts expect DLTR’s EPS to increase 39.8% year-over-year to $1.72. It surpassed the consensus EPS estimates in three of the trailing four quarters. Its annual revenue is expected to be $27.96 billion in fiscal 2023, representing a 6.2% year-over-year rise. Over the past nine months, the stock surged 34.2% to close yesterday’s trading session at $135.57.
DLTR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Sentiment.
We have also graded DLTR for Growth, Value, Momentum, Stability, and Quality. Click here to access all of DLTR’s ratings. DLTR is ranked #28 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
Vertex Pharmaceuticals Inc. (VRTX)
VRTX engages in developing and commercializing therapies for treating cystic fibrosis. The company markets SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO, to treat patients with cystic fibrosis who have specific mutations in their cystic fibrosis transmembrane conductance regulator gene.
On May 17, 2022, VRTX announced plans to build another 344,000 square foot facility in the Seaport to support its continued rapid growth, particularly the expansion of its cell and genetic therapies 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’s product revenues surged 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 its non-GAAP net income came in at $907 million, representing a 16% year-over-year rise. Also, its non-GAAP EPS came in at $3.52, up 18% year-over-year.
For the quarter ending December 31, 2021, Analysts expect VRTX’s EPS and revenue to increase 15.5% and 18.9% year-over-year to $3.59 and $2.13 billion, respectively. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 39.7% to close yesterday’s trading session at $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 grade for Quality and a B grade for Value, Sentiment, and Growth.
DLTR shares were trading at $127.88 per share on Friday afternoon, down $7.69 (-5.67%). Year-to-date, DLTR has declined -9.00%, versus a -17.71% rise in the benchmark S&P 500 index during 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 driving a stock’s price is the key approach that he follows while advising investors in his articles.