Investing in the stock market under the current economic uncertainties can be confusing and risky. However, looking for companies with a proven growth and stability track record is a prudent place to start searching for investment opportunities regardless of the macroeconomic situation.
Thus, using the GuruFocus All-in-One Screener, a Premium feature, I searched for large-cap companies with track records of consistent growth and profitability. My criteria included price-earnings and enterprise-value-to-sales ratios that were lower than their sector medians, indicating undervaluation in the market. I also looked for stocks have reported strong financial performance, with significant earnings per share and total revenue growth. Among the results, I chose three stocks to highlight in this article due to their commitments to expanding their businesses and investing in growth, which should contribute to future growth and higher stock valuations.
Centene
One stock that met my criteria was Centene (CNC, Financial). Centene's continued recognition by Fortune as one of the world's most admired companies and its expansion into new Medicaid contracts and Medicare Advantage offerings demonstrate a commitment to expanding its business and reaching more members. In addition, the strategic partnership with Evolent Health (EVH, Financial) to expand its oncology solution further strengthens Centene's position in the market and could contribute to future growth. Furthermore, 98% of Centene's share float is held by institutions, which means it benefits from institutional fund stability.
In 2022, the company improved the profitability of its Ambetter product line and saw a 21% increase in members for its Medicare Advantage business. In addition, Centene aims to enhance the profitability of its WellCare business and expand its presence in Medicaid-managed care. The company also hit all major milestones for its value creation plan, investing in data and digital tools and reducing its real estate footprint by 70%.
Centene expects to capitalize on the momentum of 2022 and continue its value creation journey for shareholders and members in 2023, with a long-term goal for 12% to 15% adjusted EPS growth. In addition, the company expects its Marketplace business to achieve margins within the long-term targeted range of 5% to 7.5% in 2023. However, the Medicare Advantage enrollment results for 2023 were softer than expected, with a goal of foundational alignment for long-term margin recovery, product stability and overall quality. Despite the soft membership results, Centene expects 100 basis points of Medicare HBR improvement in 2023, and the company is already seeing a positive operational impact for members and brokers.
Furthermore, Centene's 2023 premium and service revenue is expected to be approximately $2 billion higher than previously estimated, and its Medicaid overall growth of $1.5 billion is expected to result in a revenue give-back of roughly $9 billion by 2024. Additionally, the company's Marketplace business is $3 billion larger than previously assumed, and investment income continues to grow.
Overall, Centene looks well-positioned for long-term financial performance and growth in my opinion. The company's commitment to expanding its business, improving profitability and investing in data and digital tools while reducing its real estate footprint is promising.
CVS Health
CVS Health's (CVS, Financial) recent acquisitions of Signify Health and Oak Street Health are expected to positively impact the company's long-term financial performance and growth in market valuation. The $8 billion and $10.6 billion transaction values, respectively, indicate that CVS Health is committed to investing in growth and enhancing its value-based offerings, which are core to the company's strategy.
Additionally, CVS Health has announced strong financial results for 2022, with adjusted EPS of $8.69 and revenues of $322 billion, representing nearly 10% growth over the previous year. For 2023, the company expects adjusted EPS to range from $8.70 to $8.90, representing high-single-digit growth. The Health Care Benefits segment grew revenues by over 11% and delivered an adjusted operating income of $6 billion. The Pharmacy Services segment also saw a strong performance, with revenues increasing by 11%, and the Retail segment delivered strong results as well, outperforming initial guidance.
The Medicare-focused assets of Oak Street complement CVS Health's established care delivery assets, providing additional clinical capacity for preventive and chronic care services for seniors.
CVS Health's strategic imperatives have yielded remarkable outcomes throughout the company's history. For example, it integrated Aetna and Caremark, which surpassed 2.5 million members, and its retail pharmacy market share has grown year-over-year for the past two years. In addition, the newly created Health Care Delivery organization, along with the Signify Health transaction and a minority investment in Carbon Health, promises to expand its health care capabilities and diversify its revenue streams.
However, the long-term retail care segment reported a decline of 25.1% in adjusted operating income in 2022, mainly due to decreased Covid-19 vaccinations, diagnostic testing and pharmacy reimbursement pressure. The company is confident in its reserves but has recorded net realized capital losses and charges related to office real estate optimization and opioid litigation.
Overall, CVS Health's acquisitions, strong financial results and strategic initiatives give me optimism about the company's growth prospects.
Citigroup
Citigroup (C, Financial) is facing near-term challenges regarding its net income and returns on equity, but the company's forward-looking revenue growth outlook seems promising. The high percentage of its float held by institutions could imply market confidence in the company's long-term prospects. In addition, Citigroup's commitment to innovation and investment in platforms and capabilities enhances the client experience and expands integrated solutions.
Allocating funds toward financing or refinancing eligible green and social finance projects expands Citigroup's sustainable product suite and provides clients with comprehensive sustainable cash management solutions. Based on Citigroup's fourth quarter 2022 earnings, the macroeconomic environment is moderately positive, although structural challenges and central bank tightening may soften the economic conditions.
Citigroup's recent earnings showed an 8.9% return on average tangible common equity and $14.8 billion in net income for the year. Revenues rose 3% year over year, primarily driven by growth in Treasury and Trade Solutions (TTS) and Securities Services. Expenses increased by approximately 8%, primarily due to investments in transformation and business-led investments. In addition, technology-related expenditures increased by 13%. Going forward, healthy underlying drivers indicate intense activity in TTS from new and existing clients as new product offerings are rolled out and the client experience is improved.
Citigroup expects a slower pace of Net Interest Income (NII) growth in 2023 but predicts some normalization in market valuation. The bank anticipates normalization in banking and wealth and thinks it will hit the net income revenue (NIR) line. Citigroup sees opportunities for growth in its personal banking and wealth management businesses, with potential for revenue gains in Asia and the U.S. and from synergies with its commercial banking and market offerings.
Looking ahead, Citigroup anticipates the bank's loss rates to return to pre-Covid levels by the end of fiscal 2024. The bank is also well-reserved across all its portfolios, which should help it survive recessionary conditions.
Overall, the impact of spending on the normalization path is uncertain, as is the severity of a potential economic downturn. As a result, Citigroup's long-term financial performance and market valuation depend on how it tackles the challenges and opportunities in different business segments and geographies. After the disaster of the previous recession, though, I think Citigroup has learned its lesson.
