Inflation reached a four-decade high last year, pressuring the Federal Reserve to raise interest rates aggressively. The Fed’s hawkish stance to stamp out persistent inflation is finally yielding results, as inflation cooled for a straight second month in November 2022. The Consumer Price Index (CPI) rose 7.1% year-over-year, down from 7.7% in October and better than economists’ expectations of 7.3%.
The Fed broke a string of four consecutive 75-basis-point hikes by raising its benchmark interest rate by 50 basis points in December, bringing rates between 4.25% and 4.5%. However, the central bank indicated to keep raising interest rates throughout this year.
The Fed’s possible rate hikes have increased the odds of a recession since higher borrowing costs could cause the economy to contract significantly. According to forecasts by Bank of America (BAC) economists, a recession could hit the economy in the first quarter of 2023.
Despite the macroeconomic uncertainty, we think fundamentally sound stocks Merck & Co., Inc. (MRK), Biogen Inc. (BIIB), and MasterCraft Boat Holdings, Inc. (MCFT) could be ideal investments for significant returns.
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 December 12, MRK started a cash tender offer to purchase all outstanding shares of the common stock of Imago BioSciences, Inc. (IMGO), a clinical-stage biopharmaceutical company. In November, MRK announced that it would acquire IMGO for an approximate total equity value of $1.35 billion.
The transaction, expected to close in the first quarter of 2023, should broaden MRK’s hematology portfolio.
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 in evaluating, purchasing, operating, and creating value from Veeva products and services.
For the fiscal third quarter that ended September 2022, MRK’s sales increased 13.7% year-over-year to $14.96 billion. 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 EPS estimate for the fiscal year (ended December 2022) of $7.39 indicates a 22.8% year-over-year improvement. Likewise, the consensus revenue estimate of $59.13 billion for the current year reflects a rise of 21.4% from the prior year. The company has an impressive surprise earnings history since it surpassed consensus EPS estimates in each of the trailing four quarters.
Shares of MRK have gained 22.7% over the past six months and 44.1% over the past year to close its last trading session at $113.64.
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 Growth, Value, and Sentiment. Of the 164 stocks in the Medical – Pharmaceuticals industry, it is ranked #10.
Click here to see additional POWR Ratings for Momentum, Growth, and Stability for MRK.
Biogen Inc. (BIIB)
BIIB is a biotech company that develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases.
This week, BIIB and Alcyone Therapeutics (Alcyone) entered a license and collaboration agreement to develop Alcyone’s ThecaFlex DRx™ System, an implantable medical device used for subcutaneous delivery of antisense oligonucleotide (ASO) therapies into the intrathecal space.
Through this agreement, BIIB aims to leverage the ThecaFlex DRx™ System to improve the patient treatment experience and accessibility to neurological ASO therapies.
On December 19, BIIB agreed with Genentech, a Roche Group member, on the commercialization and sharing of economics for glofitamab. Glofitamab is an investigational CD20xCD3 T-cell engaging bispecific antibody being developed by Roche for the treatment of B-cell non-Hodgkin’s lymphomas. BIIB is expected to register substantial revenue growth with the sale of glofitamab.
During the fiscal third quarter ended September 30, 2022, BIIB’s revenue from anti-CD20 therapeutic programs increased marginally year-over-year to $416.90 million. The company’s net income grew 256.8% from the year-ago value to $1.13 billion, while EPS attributable to BIIB came in at $7.84, up 253.2% year-over-year.
As of September 30, 2022, BIIB’s cash and cash equivalents were $3.68 billion, compared to $2.26 billion as of December 31, 2021.
Analysts expect BIIB’s EPS for the fourth quarter (ended December 2022) to increase 3% year-over-year to $3.49. Also, the company’s EPS for the next quarter (ending March 2023) is expected to increase 9.6% year-over-year to $3.97. The company has surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 13.5% to close the last trading session at $271.59.
BIIB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system.
BIIB has an A grade for Value and Quality. It has a B grade for Sentiment. In the Biotech industry, it is ranked #5 out of 385 stocks.
Click here for the additional POWR Ratings for Growth, Momentum, and Stability for BIIB.
MasterCraft Boat Holdings, Inc. (MCFT)
MCFT designs, manufactures, and markets recreational powerboats. The company operates through four segments: MasterCraft; Crest; NauticStar; and Aviara.
On November 2, MCFT announced an expansion of its popular entry-level NXT lineup with the all-new 2023 NXT21 and NXT23. The new models deliver best-in-class wave performance, added storage, spacious hybrid bow design, and standard telematics.
According to George Steinbarger, Chief Revenue Officer at MCFT, since the introduction of the NXT line in 2015, the company’s entry-level offering has been well-received by customers.
For the fiscal 2023 first quarter ended October 2, 2022, MCFT’s net sales increased 29.7% year-over-year to $169.5 million. The company’s adjusted EBITDA grew 72.8% from the year-ago value to $35.94 million. Its net income from continuing operations increased 101.4% year-over-year to $24.64 million. Also, its adjusted net income per share came in at $1.43, up 90.7% year-over-year.
MCFT’s EPS for the fiscal 2023 second quarter (ended December 31, 2022) is estimated to increase 11.2% year-over-year to $1.01. Moreover, the company has surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive. The stock has gained 21.4% over the past six months to close the last trading session at $26.42.
It's no surprise that MCFT has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The stock has a grade A for Value and a B for Growth and Quality. MCFT is ranked #2 of 37 stocks in the Athletics & Recreation industry.
Beyond what is stated above, we have also rated MCFT for Momentum, Sentiment, and Stability. Get all MCFT ratings here.
MRK shares fell $0.35 (-0.31%) in premarket trading Friday. Year-to-date, MRK has gained 2.42%, versus a -0.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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