Despite a positive start to the year, US stocks finished the final trading day of February in the red.
All three of the main US equity benchmarks closed lower in the month of February.
The Dow Jones Industrial Average lost 4.2% for the month while the S&P 500 Index and NASDAQ Composite were both down by 2.6% and 1.1%, respectively.
Stocks sold off in February after concerns resurfaced over the persistent inflationary pressure that sparked a rise in US Treasury yields.
As long-term investors, it makes sense to think beyond the current market volatility and focus on which companies will best weather the upcoming volatility.
With this in mind, here are my five top stocks that I believe investors should buy and hold in March.
1. Bank of America
Bank of America Corp (NYSE: BAC) is among one of the key beneficiaries of the rising interest rate environment.
Bank of America, also known as BofA, is one of the largest banks in America, and has benefitted from the US Federal Reserve’s (Fed) aggressive rate hike cycles.
With more interest rate hikes expected this year, albeit at a less aggressive pace, this should help BofA in 2023.
The bank reported its fourth quarter and year-end earnings at the beginning of this year and both revenue and earnings beat Wall Street’s estimates.
As loan growth activity remains robust, along with rising interest rates, this should lead to a boost in its net interest income (NII) this year.
Aside from that, its credit quality is also another positive as seen by the decline in its nonperforming loans ratio in Q4 FY2022.
BofA also has a good mix of credit between consumer and commercial loans, with consumer loans making up 44% of the total while commercial loans account for about 56%.
Valuation is also attractive as BofA is trading at a forward price-to-earnings ratio (PE) of 9.63 times and has a sustainable dividend yield of 2.6%.
2. Coca-Cola
Soft drink giant Coca-Cola Co (NYSE: KO) ended FY2022 strongly as organic sales were up 15% for the Q4 2022 period.
Coca-Cola was also able to increase prices at a double-digit percentage rate across most of its portfolio, reflecting its ability to manage rising costs.
In terms of operating margin, Coca-Cola was superior at 28% of sales as compared to its key competitor – PepsiCo Inc (NASDAQ: PEP) – which has an operating margin of around 13%.
In FY2022, Coca-Cola generated US$11 billion of operating cash and management is projecting an improvement going into this year.
This helps to keep its dividend payout attractive. In fact, Coca-Cola has a 60-year history of dividend growth with a 70% dividend payout ratio.
This translates into a dividend yield of around 2.9%.
Given the uncertain market, Coca-Cola will definitely be among the top picks for me as we head towards the second quarter of 2023.
3. Microsoft
Microsoft Corp (NASDAQ: MSFT) is a technology company known for its flagship products such as Windows operating system, Office productivity suite and Visual Studio software development tools.
In recent years, its cloud computing services including Azure, Dynamics 365, and Office 365 have been key growth drivers.
Recently, we have seen a pullback in the share price as Wall Street is concerned on the slowing growth in the near term.
In fact, we saw a drop in PC shipments in the latest quarter while Microsoft’s cloud computing segment also slowed.
However, smart investors will look past those concerns towards the company’s strong operating margin, its healthy cash position and operating cash flow – as well as its growth prospects in the longer term.
The business has a large and diverse sales footprint that includes exposure to cloud services, cybersecurity, personal computing, video games and, most recently, artificial intelligence (AI).
Microsoft has confirmed its investment into OpenAI, the maker of the revolutionary ChatGPT tool, allowing the tech giant to remain as the exclusive cloud provider for the tool.
It is still in its early days but given the multi-pronged growth opportunities, as well as its resilient balance sheet and business model, Microsoft will still be a great holding in any portfolio.
4. UnitedHealth Group
UnitedHealth Group Inc (NYSE: UNH) is the largest health insurance company in the US.
Given the volatile market, the health insurance segment will offer some stability and long-term growth for investors.
The prospects are also positive as the UnitedHealth Group operates in an ageing population.
In the US, the percentage of people who are older than 65 is expected to increase to 21.6% by 2040 as compared to 16% in 2019.
During its Q4 FY2022 earnings, UnitedHealth Group’s earnings of US$82.79 billion beat Wall Street’s estimates of US$82.53 billion.
The company’s share price is also trading at a relatively fair valuation at 22 times its trailing PE level while it offers a dividend yield of 1.4%.
5. Starbucks
Finally, there’s Starbucks Corporation (NASDAQ: SBUX), which is one of the most well-known coffee and cold beverage franchises on the planet.
While the company struggled from the COVID-19 lockdowns, the reopening of the economy and international borders should boost sales.
In fact, despite limited mobility in China stemming from the COVID-zero policy, Starbucks’ net revenue and earnings have edged higher during its Q1 FY2023.
One of the key factors that has driven earnings is its rewards programme.
Starbucks’ active US rewards membership surged 15% over the year-ago period to 30.4 million.
This has been critical to the company’s growth because active members spend more money, and more frequently with the company.
Last month, Starbucks launched a new line of olive-oil infused coffee, known as the “Oleato” line.
The “Oleato” line is likely to be Howard Schultz, the interim CEO of Starbucks’ last launch as boss as he is stepping down from his position and passing the baton to Laxman Narasimhan, who will be the next CEO of Starbucks from 1 April.
I believe that the shift away from the pandemic will benefit Starbucks and, given the aggressive brand positioning and push for its rewards programme, I expect to see growth return – especially in China.
As someone who loves coffee, it is hard to say no to Starbucks as it attempts to jolt the coffee market with its biggest product launch in years.
Building resilience in a volatile market
The bear market in the past has reminded us of the importance of a resilient portfolio.
Instead of focusing on growth stocks, we need to have diversified names in our portfolio that can withstand a period of recession.
With BofA, Coca-Cola, Microsoft, UnitedHealth Group, and Starbucks, I believe investors have a strong foundation to build on while tapping the growth opportunities that emerge.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
