In 2011, following the difficulty caused by the Great Recession, S&P Global Ratings (formerly Standard & Poor's) downgraded the long-term credit outlook of the United States from its highest designation of AAA to AA+, citing budgetary issues. Fitch once again downgraded U.S. credit in 2023 and Moody's recently suggested it's contemplating a similar move. Debt and other fiscal issues only worsened in recent years and the 2024 fiscal deficit ballooned to over $1.8 trillion.
High credit ratings are not just handed out. In fact, only two U.S.-based companies maintain the coveted AAA rating from S&P. They may be a good place for investors to park cash as President Donald Trump attempts to shake up the global trade order with sweeping tariffs -- a situation that could turn into a long-lasting trade war if negotiations are not soon reached.
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See why Microsoft(NASDAQ: MSFT) and Johnson & Johnson(NYSE: JNJ) are two stocks that can successfully navigate the choppy waters of a potential recession and market turmoil.
Microsoft
As stated on its website, Microsoft holds AAA and Aaa ratings from S&P and Moody's Investors Service Inc., respectively. This shouldn't be a total surprise, considering Microsoft's products power the business world. The stock has fallen about 12% this year, which is better than any of its peers in the "Magnificent Seven."
Although Microsoft is firmly in the tech and burgeoning artificial intelligence (AI) spaces, the company holds a certain amount of diversity, given the broad spectrum of tech businesses it operates including cloud, video games, hardware, social media, and workflow tools, among others. The company was an early investor in OpenAI, which sparked the generative AI craze with its launch of ChatGPT.
But analysts point to Microsoft as providing more stability in a volatile environment because more of the company's business is done with enterprise customers over long-term contracts.
Microsoft also has a fortress balance sheet. At the end of 2024, the company had over $71.5 billion of cash and equivalents, slightly less than $40 billion of long-term debt, and equity of over $302 billion, meaning the debt-to-equity ratio is quite low. While Microsoft doesn't have a high dividend yield, it has increased the quarterly dividend for over 20 consecutive years, meaning investors will be able to generate growing passive income each year.
Johnson & Johnson
Global pharmaceutical company Johnson & Johnson is the only other company with top credit ratings. Interestingly, after Johnson & Johnson announced its acquisition of Intra-Cellular Therapies for $14.6 billion in a part cash, part debt deal, S&P said it would conduct a review on whether it should cut Johnson & Johnson's top credit rating because the acquisition will increase Johnson & Johnson's debt load. S&P also noted that Johnson & Johnson will likely make other debt-fueled acquisitions in the future.
That said, the credit rating has not been cut yet and the stock has performed quite well this year, up nearly 9%. Recently, Johnson & Johnson reported first-quarter earnings that beat analyst expectations, while raising its full-year reported revenue outlook to $91.4 billion, up from $89.4 billion. The solid results come as investors are grappling with how potential tariffs on pharma companies could impact Johnson & Johnson. Trump has recently said that he expects to levy tariffs on pharma companies in an attempt to bring more drug manufacturing back to the U.S.
On Johnson & Johnson's earnings call, CFO Joseph Wolk said the guidance includes about a $400 million impact from tariffs, including 125% retaliatory tariffs from China on U.S. goods. So, the tariff situation could continue to weigh on the stock unless the U.S. and China can find a way out of the trade war in the coming months.
At the end of 2024, Johnson & Johnson had over $24 billion of cash on the balance sheet, about $30.6 billion of long-term debt, and over $71 billion of total equity. The company recently closed the acquisition of Intra-Cellular, which will lower cash and add to the debt. All in all, though, it's still a very strong balance sheet. Johnson & Johnson also has a hearty 3.2% dividend, offering investors a nice stream of passive income.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and S&P Global. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
