In tough economic times, mega-cap stocks -- stocks with market capitalizations above $200 billion -- can have advantages. The right ones typically have more stable business models and more reliable dividends during recessions than their smaller-cap counterparts. We sifted through the roughly 20 mega-cap stocks on the market and spotted three to consider during a bear market:
Call Up Verizon
Verizon (VZ) is one of the largest communications companies in the country. Wireless contributes three-quarters of all revenues, and broadband and cable services account for about a quarter of sales. The company's network covers around 300 million people and 98% of the U.S.
In the 2022 first quarter, Verizon's revenue grew 2.1% to $33.6 billion, in line with expectations. Adjusted earnings per share of $1.35 compared favorably to $1.31 in the prior year and was also in line with estimates. The company had a net loss of 36,000 wireless postpaid phone during the quarter, but wireless revenue grew 9.5% to $18.3 billion. Total retail connections of 143 million was the best figure for the first quarter since 2018. Wireless activations improved 11%. Average revenue per account also increased 2.6%.
For 2022, the company now expects that adjusted earnings per share will be at the low end of its previous guidance of $5.40 to $5.55 for the year. Still, Verizon offers a very high and stable dividend yield of 5.2%.
Verizon's key competitive advantages include that it is often considered the best wireless carrier in the U.S. This is evidenced by the company's wireless net additions and very low churn rate. This reliable service allows Verizon to maintain its customer base as well as give the company an opportunity to move customers to higher-priced plans. Verizon is also in the midst of rolling out 5G service, which will give it an advantage over other carriers. Another advantage for Verizon is the stock's ability to withstand a downturn in the market.
Good Medicine: Pfizer
Pfizer (PFE) is a global pharmaceutical company that focuses on prescription drugs and vaccines. Pfizer's top products are Eliquis, Ibrance, Prevnar, Enebrel (international), Sutent, Xtandi, Vyndaqel/ Vyndamax, Inlyta, Xeljanz, Plaxlovid, and Comiranty. Pfizer had revenue of $81.3 billion in 2021.
In the 2022 first quarter, Pfizer's revenue rose 77% to $25,661 billion from $14,516 million and adjusted diluted earnings per share rose 72% to $1.62 vs. $0.95 on a year-over-year basis. Diluted unadjusted earnings per share rose 59% to $1.37 from $0.86 in comparable quarters.
Pfizer maintained revenue guidance at $98 billion to $102 billion and lowered adjusted diluted earnings per share to $6.25 - $6.45 for 2022.
Pfizer's current product line is expected to produce top line and bottom-line growth out to 2027 because of significant R&D and acquisitions. Its hospital products and biosimilars are all posting robust sales growth, as are its drugs and vaccines such as Eliquis (cardiovascular), Ibrance (oncology), Xtandi (oncology), Comirnaty (Covid-19 vaccine), Vyndaqel/Vyndamax (transthyretin stabilizers), Inlyta (renal cell carcinoma), Prevnar family (pneumococcal vaccine). New launch, Paxlovid (antiviral), is also growing rapidly.
Future growth will come from increasing sales for approved indications, extensions, R&D, and bolt-on acquisitions. Pfizer has a strong pipeline in oncology, inflammation & immunology, rare diseases, and vaccines.
Pfizer is one of the largest pharmaceutical companies in the world. As such, it has scale in R&D, manufacturing, regulatory affairs, distribution, and marketing around the world. This gives Pfizer the ability to bring new therapies to market, partner with smaller companies, or acquire entire companies outright. The current pipeline is robust, and some will likely be blockbuster drugs even after attrition. As a pharmaceutical company, Pfizer is thought to be recession resistant.
Pfizer stock yields 3.3%.
Wide Coverage With Broadcom
Broadcom (AVGO) designs, develops and sells semiconductors under the following business units: Wired infrastructure, wireless communication, enterprise storage and industrial. Its offerings include data center chips, factory automation, energy systems and power generation, broadband access, and home connectivity. Broadcom is a fabless semiconductor company, which means that the products it designs are manufactured by other companies/foundries.
Broadcom reported its first quarter (fiscal 2022) earnings results on March 3, showing the company generated revenues of $7.7 billion during the quarter. This represents an increase of 16% compared to the prior year's quarter. The strong revenue growth performance was possible thanks to beating estimates in the semiconductor solutions unit, while its Infrastructure software business generated solid growth as well. Broadcom reported earnings per share of $8.39 for the first quarter, which was ahead of the analyst consensus estimate.
Broadcom's profitability has exploded over the last decade. Indeed, its earnings-per-share rose tenfold between 2011 and 2020. This earnings growth was driven by a significant amount of M&A, the most important one being the merger between Broadcom and Avago Technologies.
These acquisitions naturally have impacted Broadcom's growth tremendously, so what we see in the above table is not purely the result of Broadcom's organic growth rate. By moving towards acquisitions in the software industry with its CA takeover, Broadcom has found a new way of generating inorganic growth.
Broadcom's biggest market is wireless communication, where the company owns a strong connectivity portfolio that includes advanced LTE, Bluetooth 5.x, Wi-Fi, GNSS (GPS, Galileo, etc.), and so on. Broadcom is also well positioned in the enterprise storage market, where it provides switching and other connectivity solutions and storage products such as SSD controllers.
These markets will continue to grow, and even without any major acquisitions, Broadcom's revenues should continue to grow, as well. The combination of acquisitions and organic growth should result in solid revenue growth and increasing tailwinds for profitability stemming from improving economics of scale.
Broadcom stock yields 3.3%.
As the S&P 500 Index officially entered bear market territory, it's a good time for risk-averse investors to consider safer dividend stocks, such as these three mega-cap stocks that have recession-resistant earnings and dividends.
