The consumer price index rose 5% annually and 0.1% sequentially in March, with annual inflation dropping to its lowest rate since May 2021. The Fed’s restrictive monetary policy is starting to pay off as inflation has declined from the peak of 9.1% in June last year. Although significant strides have been taken to bring inflation down, it remains above the Fed’s comfort level.
With the likelihood of further rate hikes this year, concerns of a recession loom. Amid this backdrop, it could be wise to diversify one’s portfolio with fundamentally strong stocks Merck & Co., Inc. (MRK), Archer-Daniels-Midland Company (ADM), and Open Text Corporation (OTEX).
Despite continued signs of deceleration, inflation is well above the Fed’s target of 2%. The core CPI excluding food and energy, rose 0.4% for the month, resulting in a 5.6% annual growth rate.
The encouraging inflation data will not likely stop the Fed from raising interest rates at the next month’s policy meeting. Moreover, tighter lending standards will likely push the economy toward a recession after the banking crisis.
The Fed’s March meeting minutes showed that officials fear a recession this year. It stated, “Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
These developments are expected to keep the stock market volatile this year. In this scenario, investors could spread their investments across different sectors. In any market condition, this could reduce the portfolio’s overall risk and volatility without sacrificing its expected return.
Hence, investing in these fundamentally strong stocks MRK, ADM, and OTEX, could help an investor branch out their portfolio.
Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health.
In terms of forward non-GAAP P/E, MRK’s 16.28x is 18.7% lower than the 20.01x industry average. Its 12.72x forward EV/EBITDA is 4.6% lower than the 13.33x industry average. Likewise, its 14.49x forward EV/EBIT is 13.3% lower than the 16.72x industry average.
For the fiscal year ended December 31, 2022, MRK’s sales increased 21.7% year-over-year to $59.28 billion. The company’s non-GAAP net income from continuing operations attributable to MRK increased 39.5% year-over-year to $19.01 billion. Its non-GAAP EPS came in at $7.48, representing an increase of 39.3% from the year-ago quarter.
MRK’s EPS and revenue for the quarter ending September 30, 2023, are expected to increase 5.4% and 1.6% year-over-year to $1.95 and $15.20 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 32.8% to close the last trading session at $113.75.
MRK’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #21 out of 166 stocks in the B-rated Medical – Pharmaceuticals industry. In addition, it has a B grade for Value, Stability, Sentiment, and Quality. To see the other ratings of MRK for Growth and Momentum, click here.
Archer-Daniels-Midland Company (ADM)
ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients worldwide. The company operates through three segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition.
On February 6, 2023, ADM announced the opening of a new production facility in Valencia, Spain to help meet the rising global demand for probiotics and postbiotics. This investment will help capitalize on the rising demand for probiotic supplements.
In terms of forward non-GAAP P/E, ADM’s 11.70x is 38.5% lower than the 19.03x industry average. Its 0.54x forward EV/Sales is 68.1% lower than the 1.68x industry average. Likewise, its 9.11x forward EV/EBITDA is 26.2% lower than the 12.34x industry average.
For the fiscal fourth quarter that ended December 31, 2022, ADM’s revenues increased 13.6% year-over-year to $26.23 billion. Its adjusted net earnings increased 25.8% year-over-year to $1.07 billion. Additionally, its adjusted EPS came in at $1.93, representing a 28.7% increase over the prior-year quarter.
Analysts expect ADM’s revenue for the quarter ending March 31, 2023, to increase 2% year-over-year to $24.13 billion. It has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 11.3% to close the last trading session at $81.11.
ADM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Strong Buy in our proprietary rating system.
It is ranked #5 out of 26 stocks in the Agriculture industry. It has a B grade for Growth and Sentiment. Click here, to see the additional ratings of ADM for Value, Momentum, Stability, and Quality.
Open Text Corporation (OTEX)
Headquartered in Waterloo, Canada, OTEX designs, develops, markets, and sells information management software and solutions. It offers content services; business network; security and protection solutions; digital investigation and forensic security solutions; OTEX security solutions; Carbonite and Webroot products; and OTEX Information Management software platform.
On March 1, 2023, OTEX announced its collaboration with Bayer to increase agility and improve operational efficiencies. Through industry leading Business Network Cloud Enterprise, OTEX supports the day-to-day operations relating to an organization’s B2B integrations.
OTEX’s Chief Product Officer, Muhi Majzoub, believes that by leveraging OTEX Business Network Cloud Enterprise, Bayer will optimize and simplify integration with partners, enabling the organization to focus on their core business.
On January 31, 2023, OTEX announced the closing of the acquisition of Micro Focus International plc. The acquisition will add substantial revenue, adjusted EBITDA, and operating scale to OTEX, with a combined total addressable market of $170 billion.
In terms of forward non-GAAP P/E, OTEX’s 12.73x is 37.3% lower than the 20.31x industry average. Its 9.93x forward EV/EBIT is 41.4% lower than the 16.94x industry average. Likewise, its 9.01x forward EV/EBITDA is 32.8% lower than the 13.41x industry average.
OTEX’s total revenues for the second quarter ended December 31, 2023, increased 2.4% year-over-year to $897.44 million. The company’s gross profit increased 3.3% year-over-year to $635.75 million. Its net income attributable to OTEX increased 192.7% year-over-year to $258.49 million. Additionally, its non-GAAP EPS came in at $0.89, representing no change from the prior-year quarter.
Street expects OTEX’s EPS for the quarter ending June 30, 2023, to increase 13.6% year-over-year to $0.91. Its revenue for the quarter that ended March 31, 2023, is expected to increase 34.2% year-over-year to $1.18 billion. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 50.6% to close the last trading session at $38.77.
OTEX’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It is ranked #8 out of 133 stocks in the Software – Application industry. It has a B grade for Value and Stability. We have also given OTEX grades for Growth, Momentum, Sentiment, and Quality. Get all OTEX ratings here.
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MRK shares were trading at $114.91 per share on Thursday morning, up $1.16 (+1.02%). Year-to-date, MRK has gained 4.29%, versus a 7.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
More Resources for the Stocks in this Article
| Ticker | POWR Rating | Industry Rank | Rank in Industry |
| MRK | Get Rating | Get Rating | Get Rating |
| ADM | Get Rating | Get Rating | Get Rating |
| OTEX | Get Rating | Get Rating | Get Rating |
