Stronger-than-expected economic data, including solid job growth and a robust labor market in January, shows that the economy remains resilient, despite the Fed’s interest rate hikes. After producing one of its worst returns in history last year, the S&P 500 could rebound sharply this year amid an improving economic outlook. Therefore, it might be wise to invest in quality S&P 500 stocks Visa Inc. (V), Johnson & Johnson (JNJ), and Merck & Co., Inc. (MRK).
Despite high borrowing costs, the economy looks resilient so far this year, with strong retail sales and a robust labor market. Continued economic resilience raised investors’ hopes of the economy achieving a soft landing.
David Solomon, the CEO of Goldman Sachs Group Inc. (GS), has expressed optimism about the possibility of the economy escaping a severe recession in 2023. He said, “I think the chance of a softer landing feels better now than it felt six to nine months ago.” Mathias Cormann, the Secretary-General of the OECD, also remarked that the global economic prospects are “slightly brighter” this year.
After marking 2022 as the worst year since 2008, the S&P 500 index has gained 3.8% year-to-date and is anticipated to maintain this momentum. Moreover, the benchmark index posted its positive January 2023 result for the first time in four years, rallying nearly 6.3% for the month.
Furthermore, the head of research at Fundstrat Global Advisors predicted that the S&P 500 index could yield double-digit gains this year.
Amid an improving economic backdrop, investing in growing S&P 500 stocks V, JNJ, and MRK could be wise buys for solid returns.
Visa Inc. (V)
V is a multinational payments technology company. It manages VisaNet, a network for processing transactions that facilitates the authorization, clearing, and settlement of payment transactions. In addition, the company offers Cybersource, a platform for managing payments, as well as solutions for risk and identification.
On December 14, 2022, V pledged to invest $1 billion in Africa over the next five years to help the continent’s economies become more robust, innovative, and inclusive. The pledge would aid the company in expanding its operations in Africa and strengthen collaboration with strategic partners such as governments, financial institutions, mobile network carriers, fintech, and merchants.
Also, on October 19, V announced a collaboration with Thunes to assist individuals and small businesses in moving money globally to 78 digital wallet providers. The partnership extends Visa Direct’s reach to almost 7 billion endpoints, including over 3 billion cards, 2 billion accounts, and 1.5 billion digital wallets.
By leveraging Thunes’ payment infrastructure, the company should be able to expand its reach and improve its offerings to customers, ultimately driving revenue growth.
For the first quarter of fiscal 2023 that ended December 31, 2022, V's net revenues grew 12.4% year-over-year to $7.94 billion, while its operating income rose 6.6% from the prior year’s period to $5.09 billion. The company’s non-GAAP net income increased 17.4% year-over-year to $4.58 billion, and its non-GAAP EPS stood at $2.18, an increase of 20.4%year-over-year.
The consensus revenue estimate of $32.29 billion for the fiscal year ending September 2023 reflects a 10.2% year-over-year improvement. Similarly, the consensus EPS estimate of $8.47 for the current year indicates a 13% rise from the previous year. Moreover, V surpassed its consensus revenue and earnings estimates in all four trailing quarters, which is impressive.
Shares of V have gained 8.7% over the past six months to close the last trading session at $219.94.
V's POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Stability and Sentiment. In the 49-stock Consumer Financial Services industry, it is ranked #5.
Beyond what we stated above, we also have V’s ratings for Growth, Value, and Momentum. Get all V’s ratings here.
Johnson & Johnson (JNJ)
JNJ, one of the biggest healthcare conglomerates, researches, develops, manufactures, and sells a diverse range of healthcare products. The company operates through three segments: Consumer Health; Pharmaceutical; and MedTech.
On February 24, 2023, the Janssen Pharmaceutical Companies of JNJ reported that the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) had recommended marketing authorization of AKEEGA®.
The favorable CHMP opinion represents a significant achievement in tackling BRCA1/2 mutations while advancing the company's mission to transform the prognosis for patients with mCRPC.
Furthermore, on December 22, 2022, JNJ completed the acquisition of Abiomed, Inc (ABMD). The acquisition should enable JNJ MedTech to broaden its offerings in the rapidly expanding cardiovascular market, supplementing its top-ranked Biosense Webster electrophysiology business with heart recovery solutions on a global scale.
The company’s U.S. sales grew 2.9% year-over-year to $12.52 billion during the fiscal fourth quarter (ended December 31, 2022). Its adjusted earnings before the provision for taxes on income increased 17% from the year-ago value to $7.42 billion. In addition, the company’s adjusted net earnings and EPS rose 9.5% and 10.3% year-over-year to $6.22 billion and $2.35, respectively.
Analysts expect JNJ’s revenue to increase 2.8% year-over-year to $97.63 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to rise 3.6% from the prior year to $10.51. Moreover, JNJ surpassed its consensus EPS estimates in all four trailing quarters.
The stock plummeted 1.5% intraday to close the last trading session at $153.26.
JNJ's strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system.
JNJ has an A grade for Stability and a B for Sentiment, Value, and Quality. It ranks #5 in the 173-stock Medical - Pharmaceuticals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see JNJ’s ratings for Growth and Momentum here.
Merck & Co., Inc. (MRK)
MRK is a global healthcare provider. It operates through two segments, Pharmaceutical and Animal Health. Furthermore, the company has collaborations with several other prominent industry players to develop and commercialize long-acting HIV therapies.
On January 11, 2023, MRK announced the completion of its cash tender offer through a subsidiary for all of the outstanding shares of common stock of Imago BioSciences, Inc. (IMGO), at a purchase price of $36.00 per share in cash, without interest, and subject to deduction for any necessary tax withholding.
Through a merger between MRK’s wholly-owned subsidiary and IMGO, the intended acquisition would culminate in IMGO becoming a fully-owned subsidiary of MRK, thereby strengthening the company’s operations.
Also, on December 22, 2022, MRK and Kelun-Biotech, a holding subsidiary of Sichuan Kelun Pharmaceutical Co., Ltd and a clinical-stage biotech firm specializing in biologic and small molecule discovery and development, announced their exclusive license and collaboration agreement to develop seven investigational preclinical Antibody-Drug Conjugates (ADC) to treat cancer.
MRK is continuously enhancing its oncology portfolio and anticipates collaborating with the Kelun-Biotech team to progress these candidates to benefit the patients who require them.
MRK's total sales increased 2.3% year-over-year to $13.83 billion for the fourth quarter, which ended December 31, 2022. The company's Pharmaceutical segment revenue grew marginally year-over-year to $12.18 billion.
Analysts expect MRK's revenue to grow 5.9% year-over-year to $61.73 billion for the fiscal year ending December 2024. The company's EPS for the same year is expected to increase by 21.5% from the previous year to $8.63. Furthermore, MRK surpassed its consensus revenue and EPS estimates in all four trailing quarters.
Shares of MRK have gained 21.3% over the past six months and 38.7% over the past year to close the last trading session at $106.24.
MRK's POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock also has a B grade for Quality, Stability, and Value. Within the Medical - Pharmaceuticals industry, it ranks #19 of 173 stocks.
To see additional POWR Ratings for Sentiment, Growth, and Momentum for MRK, click here.
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V shares were trading at $217.83 per share on Wednesday morning, down $2.11 (-0.96%). Year-to-date, V has gained 5.05%, versus a 3.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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