Despite the cooling down of inflation, the Fed indicated that it would continue raising interest rates this year until the 2% target is achieved. Weak economic statistics and hawkish remarks from Fed officials added to recession fears. Retail sales in the United States declined 1.1% last month, and factory production dropped for the first time since June by 0.6%.
However, the fact that inflation fell for the sixth straight month in December has fueled expectations that the Federal Reserve would soon be able to terminate the cycle of aggressive interest-rate hikes.
According to St. Louis Federal Reserve President James Bullard, "the probability of a soft landing has increased compared to where it was in the fall of 2022, when it was looking more doubtful." As a result, analysts anticipate a 25-basis-point rate increase at the Fed's next meeting.
Given the potential slowdown in monetary policy tightening, fundamentally sound stocks Merck & Co., Inc. (MRK), Novartis AG (NVS), and Cisco Systems, Inc. (CSCO) could perform well in the upcoming months.
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.
On January 26, 2023, Merck Animal Health, a division of MRK known as MSD Animal Health outside of the United States and Canada, announced the approval of an additional indication for BRAVECTO® Chews for Dogs by the U.S. Food and Drug Administration. The new indication cures and manages Asian longhorned ticks, an invasive Ixodid species found in more than one-third of the U.S.
On January 11, 2023, MRK announced the successful completion of a cash tender offer for all of Imago BioSciences, Inc.'s outstanding shares of common stock through a subsidiary (IMGO). MRK announced the acquisition of IMGO in November to supplement and expand its pipeline in the developing discipline of hematology.
MRK has paid dividends for 12 consecutive years. Over the past three years, MRK’s dividend payouts have grown at 9.1% CAGR. While MRK’s four-year average dividend yield is 2.95%, its current dividend translates to a 2.69% yield.
MRK’s net sales increased 13.7% year-over-year to $14.96 billion in the third quarter ended September 30, 2022. 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.
Street expects MRK’s EPS to increase marginally year-over-year to $7.45 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 35% to close the last trading session at $106.87.
MRK’s Strong fundamentals are reflected in its POWR Ratings. The stock's overall A rating is a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MRK has a B grade for Value, Sentiment, and Quality. Within the 169-stock Medical – Pharmaceuticals industry, it’s ranked #12.
Beyond what is stated above, we’ve also rated MRK for Momentum, Growth, and Stability. Get all MRK ratings here.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments, Innovative Medicines and Sandoz.
On January 24, 2023, Sandoz, a subsidiary of NVS, agreed to purchase worldwide product rights to Astellas' flagship systemic antifungal drug Mycamine®. The acquisition of the world's leading echinocandin, one of three key antifungal classes, could strengthen Sandoz's global hospital offering and complement its existing leadership in generic antibiotics.
On December 6, 2022, NVS and MorphoSys AG (MOR), a wholly owned subsidiary of Constellation Pharmaceuticals, Inc., entered into a global licensing agreement. The collaboration intends to improve research and develop and market pre-clinical inhibitors of a novel cancer target. This is a historic collaboration in oncology.
NVS has paid dividends for 25 consecutive years. Over the last three years, NVS’ dividend payouts have grown at a 5.5% CAGR. While NVS’ four-year average dividend yield is 3.57%, its current dividend translates to a 3.70% yield.
NVS’ total liabilities came in at $57.57 billion for the period ended September 30, 2022, compared to $63.97 billion for the period ended December 31, 2021. Also, its current liabilities came in at $28.16 billion, compared to $30.21 billion for the prior period.
NVS’ revenue is expected to increase marginally year-over-year to $52.15 billion in 2023, while its EPS is expected to increase 7.1% year-over-year to $6.48. It surpassed EPS estimates in three out of four trailing quarters. The stock has gained 12.9% over three months to close the last trading session at $89.84.
It’s no surprise that NVS has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Stability and a B for Value and Quality. It is ranked #11 in the same industry.
Beyond what is stated above, we’ve also rated NVS for Growth, Momentum, and Sentiment. Get all NVS ratings here.
Cisco Systems, Inc. (CSCO)
CSCO designs and sells a range of Internet-related technology. The company operates through three geographical segments, the Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
On December 15, 2022, CSCO and T-Mobile US Inc. (TMUS) announced a partnership to build the world's largest highly scalable and distributed countrywide cloud native converged core gateway. This advancement could permit cutting-edge 5G applications for clients and enterprises and aid CSCO’s growth.
CSCO has paid dividends for 11 consecutive years. Over the last three years, CSCO’s dividend payouts have grown at 2.8% CAGR. While CSCO’s four-year average dividend yield is 2.98%, its current dividend translates to a 3.17% yield.
CSCO’s total revenue came in at $13.63 billion for the fiscal 2023 first quarter that ended October 29, 2022, up 5.7% year-over-year. Its non-GAAP net income came in at $3.55 billion, up 2.1% year-over-year, while its non-GAAP EPS came in at $0.86, up 4.9% year-over-year.
Analysts expect CSCO’s revenue to increase 5.8% year-over-year to $54.54 billion in 2023. Its EPS is expected to increase 5.7% year-over-year to $3.55 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 10.3% to close the last trading session at $48.34.
CSCO’s overall A rating equates to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Stability. The stock is ranked #3 out of 48 in the B-rated Technology - Communication/Networking industry.
We’ve also rated CSCO for Momentum, Stability, Sentiment, and Growth. Get all CSCO ratings here.
MRK shares rose $0.54 (+0.51%) in premarket trading Friday. Year-to-date, MRK has declined -3.61%, versus a 5.51% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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