Despite risks such as COVID and inflation, markets concluded 2021 with more than 20% gains.
However, 2022 has been a dismal year for investors so far.
With inflation raging, real wage growth in the US has recently slowed down resulting in a decline in many companies' profit margins. While major corporations have effectively passed on price increases to customers, some smaller businesses struggle.
Valuation is yet another concern for the stock market in 2022. The S&P 500's price-to-earnings (P/E) ratio stood at 40 at the start of the year, a two-decade high.
Finally, the ongoing war between Russia and Ukraine is causing repercussions in almost every asset class worldwide. During market instability, safe haven investing alternatives such as recession-proof businesses are often looked at to provide better returns.
Walmart is the most consistent consumer staples retailer in the United States.
It's a brilliant "all-weather" portfolio stock that has survived market crises in the past.
In fact, Walmart held the distinction of being the top performer among the current Dow Jones Industrial Average equities during the Great Recession in 2008.
As consumers grow more price-conscious during economic crises, the firm operates well through difficult times. Walmart's competitive moat is its vast size and scale, which allows it to eliminate competitors by acquiring and selling goods for less money than everyone else. The firm lost significantly less than the overall market in March 2020 and recovered much faster.
Walmart's stock is relatively undervalued at a P/E of 28.61. Global retail sales are expected to expand rapidly in the next few years. Thus, Walmart's competitive advantages should continue to benefit the company.
Even before the conflict in Ukraine, major countries like China, the US, and Germany had begun prioritizing military spending. The current war has only exacerbated the desire among those countries to defend themselves from future threats.
Lockheed Martin has a strong moat created by its technological superiority, economics of scale, and customer loyalty. The company holds advanced technologies such as sensor fusion technology, radar, and stealth technology. These technological advantages have given the company a stronghold in its industry. LMT’s customers are sticky, and its switching cost is huge. It also has long product cycles, indicating its potential to generate huge returns at relatively low Capex.
R&D yield is defined as “the amount of operating income generated per unit of R&D expense.” Lockheed Martin’s R&D yield is 4.8. It is the highest amongst its peers. In the fourth quarter, its gross, operating, and net profit margins were 13.61 %, 13.52 %, and 9.42 %, respectively.
It has a P/E ratio of 19.71, lower than peers General Dynamics and Raytheon, which have P/E ratios of 20.50 and 38.14, respectively. The current growth in government defense spending should give upside to Lockheed Martin.
Speaking of Raytheon, Raytheon Technology Corporation is a commercial and military aerospace and defense corporation that builds and sells innovative technology solutions.
Raytheon's business stability is one of the primary reasons it's a good long-term investment – especially in times of uncertainty. The defense component of Raytheon benefits from the enormous and growing defense budget. This offers a consistent stream of money in both strong and weak economic times.
With improving profitability and strong backlogs, the company's fundamentals remain extremely stable. In Q4 FY 2021, RTX had a high margin expansion. Its EBIT, EBITDA, and Gross Margin were 19.4%, 16.84%, and 9.77%, respectively. From lows of roughly 4-5%, all of their margins rose to pre-pandemic levels.
The company is trading at a slightly higher valuation than its peers. RTX has a $147 billion market cap and trades at a P/E ratio of 38.14. However, with a Debt-to-Equity ratio at a decade low of 0.40, a robust order book, and current geopolitical situations, the company could perform as a good long-term, stable investment.