For investors, it may seem difficult to believe that 2022 is only three months old. First, the tech market corrected harshly, and the other major indexes quickly followed. In January, inflation reached a 40-year high and then edged even higher in February. Four projected interest rate hikes have turned rapidly to indications of as many as seven in 2022. Finally, Russian President Vladimir Putin ordered his army to invade Ukraine, causing a humanitarian crisis and surging gas prices.
This has made for many gloomy headlines and volatility in the markets. However, the tide may be turning. Either way, long-term investors don't need to react to the news of the day. Some companies win no matter what and deserve to be cornerstones of long-term portfolios. Let's take a look at a few.
Image source: Getty Images.
AbbVie
As the saying goes, "Hair grows even during a recession." The same sentiment can be applied to prescription medications. AbbVie (ABBV -1.03%) is unlikely to take a significant sales hit during an economic downturn as its products are, for the most part, a necessity.
A steady, growing dividend is also a terrific way for investors to relax when the market is stormy. AbbVie currently pays investors $1.41 quarterly per share. This puts the annual dividend yield at around 3.5%. The dividend has increased annually since the company was created in 2013. With a rising dividend, investors who buy and hold will see their effective yield rise.
For instance, an investor who purchased AbbVie stock three years ago would have paid about $81 per share and now have an effective annual yield of almost 7% -- and a pot of capital gains to boot. The dividend increases are likely to continue. AbbVie made $9.3 billion in dividend payments in 2021 but earned over $22.7 billion in cash from operations.
Management has done a terrific job transforming the company from being reliant on Humira to one that is prepared for the future. Humira will soon have competition from biosimilars in the U.S. This will likely cut sales significantly. However, new drugs like Skyrizi and Rinvoq are forecast to produce $15 billion in combined sales by 2025, making up for much of the lost Humira sales.
As shown below, AbbVie's total sales are expanding, and the reliance upon Humira is shrinking. This is an excellent sign of things to come.
Data source: AbbVie. Chart by author.
Intuitive Surgical
Robotic-assisted, minimally invasive surgery is no longer the stuff of science fiction. It is now quite common around the world. Intuitive Surgical's (ISRG -0.55%) da Vinci Surgical System is even shown on some reality television shows where it is used to perform bariatric procedures on high-risk patients. There were 6,730 systems installed worldwide as of the end of 2021. Intuitive dominates the market with a nearly 80% share, according to one estimate. The company often receives the "overvalued" label from some analysts and investors; however, they may be missing the long-term picture.
First, Intuitive has its financial house in tip-top condition. At the end of 2021, the company had over $8.6 billion in cash and investments on the balance sheet and no long-term debt. This is a massive 8.3% of the current market cap and $1.75 billion more than at the end of 2020. Who wouldn't want to own part of a company with this free cash flow? Intuitive has also an operating margin of 32%, putting it head and shoulders above other medical device companies, as shown below.
ISRG Operating Margin (TTM) data by YCharts
Finally, Intuitive does not just make money from selling machines. Were this the case, then market saturation would be a serious concern. Instead, most sales come from recurring sources like parts and instruments. Over 70% of sales in 2021 were recurring. It is a safe bet that this revenue will keep rolling in, given the high switching costs associated with surgical systems.
COVID-19 dampened recent growth as hospitals had to put off some elective procedures. Now that the worst of COVID-19 appears over, growth could accelerate.
O'Reilly Automotive
The prices of new and used cars have skyrocketed. Much of this is due to the semiconductor shortage, which has crimped supply in the new car market. Because of the high costs, many folks will likely try to hold on to their existing vehicles for as long as possible.
O'Reilly Automotive (ORLY 0.03%) could be a beneficiary here. The company's sales come from both do-it-yourselfers and professional service providers to the tune of about 60% and 40%, respectively.
US Consumer Price Index: New Cars data by YCharts
In fact, the company reported that comparable stores sales rose 13% in 2021 and 14.5% year over year in the fourth quarter. Gross profit grew over 15% in 2021, while diluted earnings per share jumped 32%.
One of the ways in which O'Reilly achieves massive EPS growth is through its generous share buyback program. In 2021, the company returned $2.48 billion to shareholders this way or about 5% of the current market cap.
O'Reilly stock has gained more than 36% over the last year, and the P/E ratio is just over 22, which is in its recent normal range. Look for this company to capitalize on the robust market demand.
