With a slowdown in inflation strengthening speculation that the Federal Reserve is nearing the end of its interest-rate-hike cycle, investors expect a breather from the turmoil that kept markets under pressure last year. In addition, the employment data showed that growth continues to hold up while inflation is easing.
However, as the Federal Reserve stays on course with its aggressive inflation fight, Dubravko Lakos-Bujas, Global Head of Equity Macro Research, JPMorgan Chase & Co. (JPM), expects the S&P 500 to re-test the lows of 2022 in the first half of the year. Furthermore, Bankrate foresees the central bank lifting rates to 5.25-5.5%, a quarter-point higher than the Fed’s current forecasts.
Moreover, the World Bank reduced its forecast for global economic growth from 3% to 1.7% for 2023, citing worsening economic conditions. The adjustment followed a significant decline in the U.S. economy’s prospects, with the World Bank forecasting 0.5% growth, down from the earlier projection of 2.4%.
Amid such widespread economic concerns, investors could consider adding strong stocks with solid balance sheets and robust cash flows. Large-cap companies are generally considered safer investments because of their broader market reach and fundamental depth. Moreover, these businesses tend to be less susceptible to economic headwinds.
Merck & Co., Inc. (MRK)
MRK is a global provider of health solutions through its prescription medicines, vaccines, biological therapies, and animal health products. The company operates through two segments: Pharmaceutical and Animal Health. It offers its products to drug wholesalers, retailers, hospitals, government agencies, and other healthcare providers. It has a market capitalization of $275.83 billion.
On January 11, the company announced the successful completion of the cash tender offer through a subsidiary for all of the outstanding shares of common stock of Imago BioSciences, Inc. (IMGO). In November, MRK announced the acquisition of IMGO to augment and strengthen its pipeline in the growing field of hematology.
On December 22, 2022, MRK and Kelun-Biotech, a clinical-stage biotech company, collaborated on developing seven investigational preclinical antibody-drug conjugates (ADC) for cancer treatment. This collaboration is expected to strengthen and complement the company’s oncology pipeline.
The company’s annual dividend of $2.92 yields 2.68% at the current price level. Its dividend payouts have increased at a 9.1% CAGR over the past three years and a 9.2% CAGR over the past five years. MRK has a record of 12 years of consecutive dividend growth.
During the third quarter (ended September 30, 2022), MRK’s net sales increased 13.7% year-over-year to $14.96 billion. The company’s non-GAAP net income increased 3.9% year-over-year to $4.70 billion, while its non-GAAP EPS grew 3.9% from the prior-year quarter to $1.85.
For the fiscal year 2022, which ended in December, analysts expect MRK’s revenue and EPS to increase 21.4% and 22.8% year-over-year to $59.13 billion and $7.39, respectively. MRK surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Shares of MRK have gained 33.4% over the past year to close the last trading session at $108.79.
MRK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Sentiment, and Quality. Out of 168 stocks in the Medical – Pharmaceuticals industry, it is ranked #11.
In addition to the POWR Ratings given above, click here to see MRK’s Growth, Momentum, and Stability ratings.
The Coca-Cola Company (KO)
With a market capitalization of $258.65 billion, KO is a famous beverage company that manufactures, markets, and sells various non-alcoholic beverages globally. It sells its products under the brands: Coca-Cola, Sprite, Fanta, Diet Coke, Coca-Cola Zero Sugar, Thumbs Up, Aquarius, fairlife, Minute Maid Pulpy, and Simply, among others.
On September 29, 2022, KO and Molson Coors Beverage Company (TAP) entered an exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails. It will be launched in more than 20 markets across the country this year and should boost the company’s revenue significantly.
The company paid a quarterly dividend of 44 cents per share to its shareholders on December 15, 2022. KO’s four-year average dividend yield is 3.06%, and its forward annual dividend of $1.76 translates to a 2.94% yield at the current price level. Its dividend has grown at a 3.2% CAGR over the past three years and a 3.5% CAGR over the past five years. Also, it has a record of 60 consecutive years of dividend growth.
KO’s net operating revenue increased 10.2% year-over-year to $11.06 billion in the third quarter that ended September 30, 2022. Its gross profit grew 7.1% from the year-ago value to $6.50 billion, while its net income attributable to shareowners increased 14.3% year-over-year to $2.83 billion. The company’s EPS increased 14% from its year-ago value to $0.65.
Analysts expect KO’s EPS and revenue to increase 7.3% and 10.6% year-over-year to $2.49 and $42.77 billion, respectively, in the fiscal year 2022 that ended on December 31, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past three months, the stock has gained 6% to close the last trading session at $59.81.
KO’s solid prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Stability, Sentiment, and Quality. The stock is ranked #17 of 36 stocks in the A-rated Beverages industry.
To see additional POWR Ratings of KO for Growth, Value, and Momentum, click here.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide through two segments: Innovative Medicines and Sandoz. The company has a market capitalization of $198.24 billion.
In December, NVS and MorphoSys AG (MOR), a Constellation Pharmaceuticals, Inc. subsidiary, entered into a global licensing agreement. The agreement aims to enhance research and commercialize pre-clinical inhibitors of a novel cancer target, thereby being a milestone partnership in oncology.
In the same month, clinical-stage precision oncology company Erasca, Inc. (ERAS) announced that it had entered into an exclusive worldwide license agreement with NVS for naporafenib, a Phase 2 pivotal-ready pan-RAF inhibitor. Under the license agreement, NVS would receive a one-time upfront cash payment of $20 million, $80 million of shares in ERAS common stock at $6.50 per share, and other benefits.
NVS’ four-year average dividend yield is 3.57%, and its forward annual dividend of $3.33 translates to a 3.61% yield at the current price level. The company’s dividend has grown at a 5.5% CAGR over the past three years and a 4.1% CAGR over the past five years. Also, NVS has a record of three consecutive years of dividend growth.
For the fiscal third quarter that ended September 30, 2022, NVS’ net sales were $12.54 billion. Its net income and EPS came in at $1.58 billion and $0.72, respectively, for the same period. The company’s cash inflows from investing activities from continuing operations stood at $5.20 billion, compared to $1.2 billion net cash outflows in the previous year’s quarter.
For the fiscal first quarter (ending March 2022), NVS’s revenue is expected to increase marginally year-over-year to $12.66 billion. Street expects its EPS to increase 8.2% year-over-year to $1.58 in the current quarter.
NVS’ shares have gained 18.9% over the past three months. It closed the last trading day at $92.16.
NVS’ POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It also has an A grade for Stability and a B for Value and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #12 of 168 stocks. Click here to see the additional POWR Ratings of NVS (Growth, Momentum, and Sentiment).
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MRK shares were trading at $109.52 per share on Thursday afternoon, up $0.73 (+0.67%). Year-to-date, MRK has declined -1.29%, versus a 1.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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