There is a difference of opinion about whether the economy is headed for a recession or perhaps already coming out of one, depending on what metrics are used. That can be confusing for investors, but there are stocks that can allow you to sleep more soundly if indeed we are headed for a bear market.
To find those stocks, I used four criteria: 1) companies that are defensive in nature because they provide necessary products and services; 2) companies with strong balance sheets to weather an economic storm; 3) stocks that are competitively priced versus peers; and 4) lastly, stocks with above-average dividend yields that provide investors with steady income.
Three stocks that fit all four criteria are Pfizer (PFE -1.49%), Bristol Myers Squibb (BMY 1.22%), and NNN REIT (NNN -0.32%).
Why I like Pfizer
Pfizer fares well during bear markets because healthcare medications are a necessity that people really can't forego.
The pharmaceutical giant didn't show revenue or earnings-per-share (EPS) growth in the first quarter, but that's misleading. The company made a lot of money the past couple of years from its COVID-19 therapies, especially COVID-19 vaccine Comirnaty and COVID-19 therapy Paxlovid.
Now that revenue from its COVID franchise is declining, the company reported first-quarter revenue of $18.3 billion, down 29% year over year. But if you exclude sales of its COVID-19 franchise, revenue grew 5% over the same period last year.
The same can be said for its expected guidance this year, with Pfizer saying it expects revenue to be between $67 billion and $71 billion, a decline of between 29% and 33%. However, if you take COVID-19 therapies out of the mix, Pfizer's revenue will climb between 7% and 9%.
Pfizer has put its COVID profits to good use. It has 101 programs in its pipeline, including 38 in phase 3 trials. On top of that, the company has already had four new approvals this year, including new indications for Paxlovid and pneumococcal conjugate vaccine Prevnar 20, as well as for Abrysvo, which is a respiratory syncytial virus vaccine for older adults, and migraine nasal spray Zavzpret.
The concern about the company's expected revenue decline has driven the stock's price down more than 21% this year, making it much more affordable. Pfizer shares trade at less than 8 times earnings, well below most competitors.
Meanwhile, Pfizer raised its quarterly dividend by 2.5% this year to $0.41 per share and it delivers a yield of around 4%, more than double the S&P 500 average. The company has raised its dividend for 14 consecutive years.
Why I like Bristol Myers Squibb
A lot of the things I said about Pfizer also pertain to Bristol Myers Squibb. The pharmaceutical company's products are somewhat recession-proof. Earnings recently showed a decline, but not likely for long. The company has solid financials, and the stock is underpriced with an above-average dividend.
The company reported first-quarter revenue of $11.3 billion, down 3% year over year, but EPS was up 81% to $1.07. The company expects full-year revenue to rise 2% with EPS between $4.03 and $4.33, compared to $2.95 in 2022.
The revenue dip was thanks mainly to the loss of exclusivity of multiple myeloma therapy Revlimid. Fortunately, Bristol Myers is already beginning to see the fruits of a large pipeline. It has 50 programs in development, including 28 in phase 3 trials.
This includes oncology therapies that could see approvals for new indications in the coming months. Lung cancer therapy Repotrectinib has a Prescription Drug Use Fee Act (PDUFA) date of Nov. 27. The drug has shown the potential to be a best-in-class ROS1 inhibitor to treat locally advanced or metastatic non-small cell lung cancer (NSCLC).
Reblozyl is already approved to treat anemia in adults with beta thalassemia as well as those with myelodysplastic syndrome. Its next indication could be to treat lower-risk myelodysplastic syndrome, which occurs when blood-forming cells in the bone marrow become abnormal. That has a PDUFA date of Aug. 28.
Abecma, approved to treat adult patients with relapsed or refractory multiple myeloma, has a PDUFA date of Dec. 16 as a triple-class exposed relapsed and refractory multiple myeloma therapy. Another therapy showing the potential for growth is lymphoma therapy Breyanzi, which is being tested to treat relapsed and refractory chronic lymphocytic leukemia (CLL) and small lymphocytic lymphoma (SLL), two types of non-Hodgkin lymphoma.
Bristol is also seeing a quick uptake in three products that were approved last year: oncology therapy Opdualag, heart disease drug Camzyos, and plaque psoriasis medicine Sotyktu.
The company has raised its quarterly dividend for 14 consecutive years, including a 5.6% bump this year to $0.57 per share, delivering a yield of around 3.45%. Bristol's shares are down a little more than 8% this year and trading at a little more than 19 times earnings and 8 times forward earnings.
Why I like NNN REIT
NNN REIT, formerly known as National Retail Properties, is a real estate investment trust (REIT) that leases properties to retail businesses, including 3,449 properties across 49 states.
It has more than 380 tenants across 37 different industries. NNN focuses on solid tenants and it offers both geographic diversity as well as tenant diversity, with no tenant responsible for more than 4.6% of the company's total properties. Its top four tenants include 7-Eleven, Mister Car Wash, Camping World, and LA Fitness.
The stock is down a little more than 6% this year, making the current price point more approachable to investors. Price-to-earnings ratios aren't an accurate metric for REITs, but the company's price-to-funds-from-operation (FFO) ratio of 13.7 is lower than for other popular retail-oriented REITs such as Realty Income or Agree Realty.
In the first quarter, NNN reported that FFO rose 6.7% year over year and adjusted FFO was up 3.8%. Revenue was $204 million, up 7% year over year. The company's occupancy levels were an impressive 99.4%.
The company's dividend yield is conservative for a REIT, but still lucrative for investors. It has increased its quarterly dividend for 33 consecutive years, including a 3.8% bump last year to $0.55 per share, which equals a yield of about 5.16%. The dividends are backed up by stable cash flows, thanks to the company's average remaining lease term of 10.3 years.