The Consumer Price Index (CPI) report for October came in lower-than-expected, increasing 7.7% from a year ago and 0.4% sequentially. Dow Jones estimates were 7.9% and 0.6%, respectively. Although inflation remains well above the Fed’s 2% target level, it certainly shows signs of cooling down.
“It’s pretty clear that inflation has definitely peaked and is rolling over. All the trend lines suggest that it will continue to moderate going forward, assuming that nothing goes off the rails,” said Mark Zandi, chief economist at Moody’s Analytics.
The market now expects a “Powell pivot” and is impatiently waiting for the central bank to slow or stop its aggressive pace of interest rate hikes.
On the other hand, the post-pandemic healthcare industry is booming with technological advancements and enhanced care procedures. With an upsurge in the geriatric population and increased health consciousness among individuals, this sector should see a strong demand despite ongoing market headwinds. According to Statista, healthcare segment revenue is expected to grow at a 12.3% CAGR to reach $94.39 billion by 2027.
Given the backdrop, we think it could be wise to buy healthcare stocks Merck & Co., Inc. (MRK) and Elevance Health Inc. (ELV), given their robust fundamentals.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company operating through two broad segments: Pharmaceutical and Animal Health. The Pharmaceutical segment offers human health pharmaceutical products, while the Animal Health segment develops and markets veterinary pharmaceuticals.
On November 1, MRK and Veeva Systems (VEEV) announced a ten-year strategic partnership agreement that aims to help accelerate MRK’s digital strategy and make the company more efficient in evaluating, purchasing, operating, and creating value from Veeva products and services. This should help the company leverage innovative technology and deliver value to its stakeholders.
MRK’s $2.76 annual dividend yields 2.71% at its current share price. On July 26, MRK declared a quarterly dividend of $0.69 per share on its common stock, which was payable to shareholders on October 7. Its dividend payouts have increased at a 9.6% CAGR over the past three years and a 9% CAGR over the past five years. The company has a history of hiking dividends for 11 consecutive years.
MRK’s sales increased 13.7% year-over-year to $14.96 billion in the fiscal third quarter that ended September 2022. The company’s non-GAAP net income grew 3.9% year-over-year to $4.70 billion, while its non-GAAP earnings per share rose 3.9% year-over-year to $1.85.
The consensus revenue estimate of $59.06 billion for the fiscal year ending December 2022 reflects a 21.3% year-over-year increase. The consensus EPS estimate of $7.38 indicates a 22.6% improvement from the same period last year. The company has an impressive surprise earnings history, as it has surpassed Street EPS estimates in all four trailing quarters.
The stock has gained 33% year-to-date to close its last trading session at $101.89. It increased 12.6% over the past month.
MRK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MRK is rated a B in Value, Sentiment, and Quality. Of the 162 stocks in the Medical – Pharmaceuticals industry, it is ranked #14.
Click here to see additional POWR Rating for Momentum, Growth, and Stability for MRK.
Elevance Health Inc. (ELV)
ELV operates as a holistic health benefits company that supports consumers, families, and communities across their entire care journey by connecting to the required care, support, and resources to lead healthier lives. The company serves approximately 118 million people through a portfolio of medical, digital, pharmacy, behavioral, clinical, and care solutions.
On November 9, ELV announced that it had entered into an agreement with CarepathRx, a portfolio company of Nautic Partners, to acquire BioPlus, a comprehensive pharmacy that provides a holistic range of specialty services for patients living with complex and chronic conditions. This should help ELV meet its specialty drug needs and should prove to be strategically beneficial for it.
ELV’s $5.12 annual dividend yields 0.98% at its current share price. On October 18, ELV announced its quarterly dividend of $1.28 per share, which is payable to its shareholders on December 21. Its dividend payouts have increased at a 16.4% CAGR over the past three years and a 13.4% CAGR over the past five years. The company has a record of 10 consecutive years of dividend growth.
For the fiscal third quarter ended September 30, 2022, ELV’s total operating revenue increased 11.5% year-over-year to $39.63 billion. Its total operating gain rose 10.2% year-over-year to $2.27 billion in the same period. In addition, the company’s adjusted net income and net income per share came in at $1.82 billion and $7.53, up 9.1% and 10.9% year-over-year, respectively.
Analysts expect ELV’s EPS for the fiscal year 2022 to come in at $29.02, indicating an 11.7% year-over-year increase. The consensus revenue estimate of $155.67 billion for the same period represents a 13.7% year-over-year rise. The company also beat the consensus EPS estimates in each of the trailing four quarters, which is commendable.
ELV has gained 22.8% over the past year to close the last trading session at $521.88.
It is no surprise that ELV has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system.
The stock has a B grade for Growth, Value, Stability, Sentiment, and Quality. ELV tops the list of 11 stocks in the A-rated Medical – Health Insurance industry.
To access all the POWR Ratings for ELV, click here.
MRK shares were trading at $97.94 per share on Friday afternoon, down $3.95 (-3.88%). Year-to-date, MRK has gained 31.03%, versus a -15.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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