With many investors focusing on the decline in the S&P 500, you might be surprised to know there are companies that are greatly outperforming the index. In some cases, certain stocks have seen a total return that is more than 20% ahead of the benchmark's return year to date.
This level of performance in the midst of a market-wide sell-off speaks to the strength of these individual companies. At the same time, these names are not wildly overvalued, which could make them an appealing investment option for those looking for stocks outperforming the market or those wishing to formulate a shopping list for when a further pullback does occur.
I will examine three names that have a total return of at least 22% better than the S&P 500 since the beginning of 2022. In addition to market-beating returns, each name yields at least 2%, higher than the S&P 500’s average yield of 1.7%.
AbbVie
First up is AbbVie Inc. (ABBV, Financial), a leading biotech company that produces drugs for immunology, oncology and virology uses. The nearly $250 billion company generates annual sales of $56 billion.
AbbVie’s top-grossing product remains Humira, but the drug has already lost patent protection in the European Union and will do likewise in the U.S. starting next year. This has already had an impact on the company’s business results. Humira, once the top-selling product in the world, saw first-quarter revenue fall 2.7% to $4.7 billion as a small gain domestically was more than offset by 22.6% decrease in international markets.
The good news for investors is that the company does have a promising pipeline that leadership expects to fully replace Humira revenue by the middle of this decade. This includes Skyrizi, which treats moderate-to-severe plaque psoriasis and psoriatic arthritis, and Rinvoq, which is used to treat moderate-to-severe rheumatoid arthritis.
Both treatment options are not yet to the level of Humira, but Skyrizi grew 64% to $940 million last quarter while Rinvoq improved 54% to $465 million. Together, these two products have peak sales estimates that are close to what Humira generates at the moment.
AbbVie has raised its dividend every year since being spun off from parent company Abbott Laboratories (ABT, Financial). Including the time it was part of its former parent company, AbbVie’s dividend growth streak is 50 years. The dividend has compounded at a rate of almost 16% annually since 2013. Shares yield 4.1%, more than twice the average yield of 1.6% for the S&P 500 Index.
Despite the headwinds from Humira, AbbVie has greatly outperformed the index for the year.
Shares of the company are up more than 4% in 2022. Including the stock’s dividend, shares have a relative total return that is more than 27% better than the market index.
Even with this outperformance, AbbVie is fairly valued looking at the GF Value chart.
Currently, AbbVie is trading at 1.10 times its GF Value of $128.37. The last time the stock traded this close to its intrinsic value was in early February of this year.
Coca-Cola
The second name to consider is Coca-Cola Co. (KO, Financial), the largest beverage company in the world. The company is valued at $266 billion and generated sales of nearly $39 billion last year.
Coca-Cola’s portfolio holds more than 500 non-alcoholic brands. The company has more than 20 brands that bring in at least $1 billion of revenue annually. This list includes well-known names like the namesake Coca-Cola brand, but also Diet Coke, Sprite, Minute Maid and Vitamin Water.
While the company does not benefit from having a more diversified business model like PepsiCo Inc. (PEP, Financial) does with a food and snack business, Coca-Cola’s products are consumed almost 2 billion times per day. This gives it a size and scale that is largely unmatched by its competitors.
Coca-Cola leveraged its leadership position in its industry to produce impressive results in its most recent quarter. The first quarter saw organic growth of 18%, which included a 11% increase in concentrate volume and a 7% contribution from pricing and mix. This follows a 6% increase in organic sales in the same period of 2021, speaking to the demand for Coca-Cola’s products.
The ability to provide products that consumers want under all economic conditions is why Coca-Cola has a dividend growth streak that now numbers 60 years in length. Shareholders have seen an average dividend increase of 5.7% since 2012. Coca-Cola yields 2.9%, almost twice that of the index.
With quality business results and a long track record of dividend growth, it is not surprising the company has held up better than the market so far this year.
Coca-Cola has returned 4% in 2022. Factor in the dividend and this leads to a total return outperformance of 22.8% for the stock for the year versus the S&P 500.
The GF Value chart shows the stock trading right at its intrinsic value.
Shares of the company are trading at 1.0 times the GF Value of $61.32. Coca-Cola’s stock has traded within 10% of the GF Value for the last year or so.
Raytheon Technologies
The final stock is Raytheon Technologies Corp. (RTX, Financial), one of the largest aerospace and defense companies in the world. The company is valued at $137 billion and has annual revenue of $64 billion.
Raytheon Technologies came to be following the merger of Raytheon and United Technologies on April 3, 2020. The combined company is now a leader in both commercial aerospace and defense. This gives it two avenues for growth as it is not reliant on just one business.
Commercial demand did endure a difficult period as the Covid-19 pandemic greatly reduced the need for products and services. Growth has since returned as the Collins Aerospace and Pratt & Whitney segments both saw double-digit revenue growth in the first quarter of 2022. Air travel is projected to continue as pent-up demand is expected to be high.
On the other hand, the company’s defense segments were down mid-single digits in the last quarter, partially due to the U.S. pullout from Afghanistan. However, certain Raytheon Technologies’ products have proven very successful in Ukraine’s defense of the Russian invasion, driving up demand for products such as the anti-aircraft Stinger missile and other items.
It is likely the defense industry in general will see a benefit from the ongoing invasion as well as higher demand from NATO countries looking to bolster their defense systems ahead of a possible Russian threat to the defense alliance.
Defense spending has been robust in the past, which is one reason why the names in the industry have been able to raise dividends for long periods of time. Prior to the merger, United Technologies and Raytheon had dividend growth streaks of 26 and 15 years, respectively. Raytheon Technologies raised its dividend 7.4% and 7.8% over the past two years, showing the company remains committed to increasing its dividend. The stock yields 2.4%, almost a full percentage point above what the market offers today.
Raytheon Technologies has benefited from a solid operating environment.
Shares of the company are up more than 7% for the year, with a relative total return of 32.1% compared to the S&P 500.
Even with the positive tailwinds, Raytheon Technologies is not trading that far above its intrinsic value according to the GF Value chart.
Presently, the stock is trading at 1.09 times its GF Value.
Final thoughts
The decline in markets might make it seem that stocks of all stripes are suffering substantial losses. That is not the case for some of the high-quality names in the market.
AbbVie, Coca-Cola and Raytheon Technologies are three examples of stocks outperforming the S&P 500 by a wide margin. Each name is up at least 22% relative to the index since the beginning of the year. Each stock also has a market-beating dividend yield and is fairly valued against its intrinsic value.
This suggests AbbVie, Coca-Cola and Raytheon Technologies are three stocks investors should consider when looking for standout names providing income even as the overall market continues to decline.
