The Fed’s consecutive rate hikes over the year are finally showing some results, as inflation came in lower than expected in October. While this has garnered substantial optimism among investors, a slower pace of rate hikes is expected in the coming months.
Veteran investment strategist Ed Yardeni sees the stock market jumping significantly before year-end as the economy proves to be more resilient than most expect. Moreover, Yardeni said in an interview with CNBC last week that the S&P 500 could finish the year at 4,300, which would be a solid turnaround from its mid-October depth of 3,491.
Amid rising optimism, we think fundamentally strong stocks, Merck & Co., Inc. (MRK), The Coca-Cola Company (KO), and Verizon Communications Inc. (VZ), which have seen surging insider buying this month, might be ideal investments now.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company operating through its two broad segments, Pharmaceutical, which offers human health pharmaceutical products; and Animal Health, which develops and markets veterinary pharmaceuticals.
On November 21, MRK and Imago BioSciences, Inc. (IMGO) announced that the companies have entered into a definitive agreement under which Merck, through a subsidiary, will acquire Imago for $36.00 per share in cash for an approximate total equity value of $1.35 billion.
Robert M. Davis, MRK’s president and chief executive officer, said, “This acquisition of Imago augments our pipeline and strengthens our presence in the growing field of hematology.”
On November 1, MRK and Veeva Systems (VEEV) announced a ten-year strategic partnership agreement that builds on the existing 12-year partnership between the companies. The partnership is aimed to help accelerate MRK’s digital strategy, and makes the company more efficient to evaluate, purchase, operate, and create value from Veeva products and services.
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 annual dividend of $2.76 yields 2.57%. The company’s 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 an excellent record of 11 years of consecutive dividend growth.
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. Its non-GAAP earnings per share rose 3.9% year-over-year to $1.85.
The consensus revenue estimate of $59.07 billion for the fiscal year ending December 2022 reflects a 21.3% increase from the last year. The consensus EPS estimate of $7.38 indicates a 22.7% improvement year-over-year for the same year. The company has an impressive surprise earnings history, as it has surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 40.3% year-to-date to close its last trading session at $107.50. The stock has gained 7.8% 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 #10.
Click here to see additional POWR Rating for Growth, Momentum, and Stability for MRK.
The Coca-Cola Company (KO)
KO is a popular beverage company that manufactures, markets, and sells various nonalcoholic beverages worldwide. The company offers sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, and energy drinks.
On September 29, KO and Molson Coors Beverage Company (TAP) entered into an exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails inspired by the bright and refreshing taste of tequila and vodka-based beverages. It will be launched in more than 20 markets across the country in 2023 and might bolster the company’s revenue stream.
On October 20, KO announced its regular quarterly dividend of $0.44 per common share, payable on December 15.
The company pays $1.76 per share dividends annually, which translates to a 2.81% yield at the current price. It has a 4-year average dividend yield of 3.08%. The company has raised its dividend for the past 59 years. Moreover, it has increased its dividend at a CAGR of 3.1% over the past three years and a CAGR of 3.6% over the past five years.
For the fiscal third quarter ended September 30, KO’s non-GAAP net operating revenue came in at $11.05 billion, up 10% year-over-year. The company’s non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion. Moreover, its non-GAAP net income per share increased 6.2% year-over-year to $0.69
KO’s EPS is estimated to improve by 7.1% year-over-year to $2.48 for the fiscal year ending December 2022. Similarly, its revenue estimate of $42.65 billion represents a 10.3% growth from the prior year. On top of it, KO has surpassed EPS estimates in all four trailing quarters.
The stock has gained 5.3% over the past five days to close its last trading session at $62.69.
It’s no surprise that KO has an overall B rating, which translates to Buy in our proprietary rating system.
KO is rated a B in Stability, Sentiment, and Quality. Within the A–rated Beverages industry, it is ranked #18 out of 34 stocks.
Beyond what we’ve stated above, we have also given KO grades for Value, Momentum, and Growth. Get all KO ratings here.
Verizon Communications Inc. (VZ)
VZ offers communication, information, and entertainment products and services to consumers, businesses, and governmental agencies. The company provides wireless and wireline communications services and products in the United States through Consumer Group and Business Group segments.
On November 15, VZ’s BlueJeans, a virtual care delivery announced a partnership with OpenLoop, a leader in white-label telehealth support services, to provide BlueJeans customers access to unrivaled provider staffing services through OpenLoop’s NCQA-certified network of clinicians in all 50 states, with payer coverage across 250 million patient lives.
The company aims to see greater televisit efficiency and enhanced clinical workflows with the introduction of their provider staffing services.
During the third quarter of the fiscal year 2022 ended September 30, VZ’s total operating revenues grew 4% year-over-year to $34.2 billion. Its adjusted EBITDA and net income came in at $12.2 billion and $5 billion, respectively. Moreover, the company reported its adjusted EPS to be $1.32 for the quarter.
For the current fiscal fourth quarter ending December 2022, VZ’s revenue is expected to increase 3.9% year-over-year to $35.41 billion. Additionally, the company has topped the consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 7.8% over the past month to close the last trading session at $39.02.
VZ’s promising outlook is depicted in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It has a B grade for Growth and Stability. VZ is ranked #2 out of the 19 stocks in the Telecom – Domestic industry.
Click here to see the additional VZ ratings for Value, Momentum, Sentiment, and Quality.
MRK shares were trading at $108.20 per share on Monday morning, up $0.70 (+0.65%). Year-to-date, MRK has gained 44.76%, versus a -14.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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