2023.03.06 4,200 to be the major resistance

The February ISM manufacturing index was 47.7 in February, shrinking for the fourth consecutive month, lower than market expectations of 48, but slightly higher than the previous value of 47.4. For the sub-items of the index, the ISM new orders index jumped to 47 in February from 42.5 in January, it was the sixth consecutive month of a number below 50, but higher than market expectations of 43.7. The manufacturing employment index slowed to 49.1 from 50.6, and the manufacturer price index increased to 51.3 from 44.5, higher than expectations of 46.5. The index of outstanding orders rose to 45.1 in February from 43.4 in the previous month, showing that the number of orders have also increased. Overall, although the manufacturing data in February has improved MoM, the manufacturing sector is still under pressure in the short term with expected higher interest rates.

According to the U.S. Labor Department, weekly jobless claims fall 2,000 to 190,000, below market expectations of 195,000 and remained below 200,000 for seven consecutive weeks.

Continuing claims drop 5,000 to 1.655 mn, as the US labor market stays resilient. The US price index rose to 51.3 in February from 44.5 in the previous month, reflecting continual inflationary pressures. Fed’s February meeting notes showed that the inflation rate was still above the 2% target, together with the recovery of the labor market, the pace of interest rate hikes may continue until inflation is under control. According to the interest rates futures, the U.S. rates may rise to 5.5-5.7%. We expect S&P 500 index to consolidate in near term and trade between 3,500 points and 4,200 points.

Due to the recent volatility in US stocks, we recommend investors to pay attention to high-quality stocks with stable business and cash flow.

Johnson & Johnson Group (JNJ.US) is a global healthcare company covering consumer goods, pharmaceuticals, and medical equipment. In 4Q22, the company’s revenue was US$23.7 bn, -4.4% YoY, and its net profit was US$3.52 bn, -25.7% YoY. The company’s revenue reached US$94.9 bn in 2022, +1.3% YoY, net profit was US$17.94 bn, -14.1% YoY, and EPS was US$6.73, -13.8% YoY. The company expects revenue to grow 3.5% to 4.5% YoY in 2023, and earnings per share to increase to $10.45-$10.65, higher than the market estimate of $10.35.

The company confirmed on a conference call that its consumer health business is on track to spin off in 2023. In 2022, the revenue of the company’s consumer health department declined slightly, but the profit before tax increased by 86.3% YoY to US$2.93 bn, mainly due to the increase in demand for over-the-counter drugs such as Tylenol and Motrin. The company hopes to focus on its faster-growing medtech and pharmaceuticals units by spinning off its slower-growing consumer health unit. After the split, the two new companies will become leaders in their respective fields and are expected to focus more on their own businesses. It is recommended to buy at US$149.0, target at US$167.0, and stop loss at US$140.0.

Procter & Gamble (PG.US) is one of the largest consumer goods companies in the world. The company has many high-quality brands, including Pampers, Tide, Pantene, Crest, Olay, SK-II, Oral B, etc. In 2Q23, the company’s revenue was US$20.77 bn, -1% YoY, and its net profit was US$3.96 bn, -7% YoY. In 2022, the performance of the US market is relatively strong, while the business in China has not rebounded due to the impact of Covid.

The company announced the completion of a new diaper production line worth PHP864 mn to expand its existing capacity in Cabuyao, Laguna. The project will produce baby diaper products, which will eventually be exported and sold to South Korea and Vietnam. Moreover, in order to expand the product line, textured haircare brand Mielle Organics is being acquired by P&G and is waiting for regulatory approval. The brand will operate as an independent subsidiary of P&G Beauty. Mielle was built in 2014, aiming to develop beauty products “rooted in natural ingredients” designed for women of African ethnicity. With Mielle joining P&G, companies hope to increase market share of hair products and services for women of African descent globally. It is recommended to buy at US$136.0, target US$153.0, and stop loss at US$128.0.