The Federal Reserve on Wednesday approved a fourth consecutive 75-basis-point interest rate increase. Fed Chairman Jerome Powell commented that the Fed’s window for a soft landing for the economy is narrowing, emphasizing that the central bank will continue to battle rising broad price inflation until it can declare victory and reduce inflation to its target of 2%.
The hike brings the central bank’s benchmark lending rate to a range of 3.75%- 4%, the highest since January 2008. However, wages and salaries rose by 1.2% in the third quarter, down from 1.6% in the prior quarter, according to the Employment Cost Index. This could slightly reduce the inflationary pressure.
Markets have witnessed a massive sell-off this year. Moreover, the U.S. economy has been flashing warning signs of a recession, which could keep the market under pressure.
Given this backdrop, it could be wise to invest in fundamentally strong and resilient stocks Merck & Co., Inc. (MRK), Biogen Inc. (BIIB), and Kroger Co. (KR). These stocks have a Strong Buy rating in our proprietary POWR Ratings system.
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 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.
On September 27, MRK’s division Merck Animal Health completed a minority investment in LeeO Precision Farming B.V. This investment supplements Merck Animal Health’s broad portfolio of veterinary pharmaceuticals, vaccines, and technology solutions.
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. 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. 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% increase from the last year. The consensus EPS estimate of $7.38 indicates a 22.6% 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 29.7% year-to-date to close its last trading session at $99.40. The stock has gained 15.4% 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 Growth, Value, Sentiment, and Quality. Of the 164 stocks in the Medical - Pharmaceuticals industry, it is ranked #11.
Click here to see additional POWR Rating for Momentum and Sentiment for MRK.
Biogen Inc. (BIIB)
BIIB is a biotech company that develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases.
During the fiscal third quarter ended September 30, 2022, BIIB’s total revenue came in at $2.51 billion. Its net cash provided by investing activities grew 815.8% year-over-year to $1.67 million. The company’s net income increased 256.8% from the year-ago value to $1.13 billion, while its EPS grew 253.2% from the prior-year quarter to $7.84.
BIIB’s EPS is expected to grow 10.8% in the fiscal first quarter ending March 2023 to $4.01. Its revenue is expected to be $2.33 billion in the same quarter. Additionally, the stock has surpassed its consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 34.3% over the past six months to close the last trading session at 278.37.
It is no surprise that BIIB has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value, Sentiment, and Quality. It is ranked #3 out of 386 stocks in the Biotech industry.
To see additional POWR Ratings for Growth, Momentum, and Stability for BIIB, click here.
The Kroger Co. (KR)
KR operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses.
On October 18, KR announced the official opening of its newest Customer Fulfillment Center in Romulus, Michigan, which will leverage advanced robotics technology and creative solutions to redefine the customer experience for customers in the greater Detroit area. The expansion should help drive up the company’s revenue stream over time.
On October 14, KR and Albertsons Companies (ACI) announced that they have entered into a definitive agreement under which the companies will merge, aiming to expand the customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience. The company expects this collaboration to drive profitable growth and sustainable value for all its shareholders.
On September 15, KR declared a quarterly dividend of 26 cents per share to be paid to shareholders on December 1, 2022. The company has 15 years of consecutive dividend growth.
KR’s sales increased 9.3% year-over-year to $34.64 billion in the fiscal second quarter ending August 13. Its operating profit increased 13.7% year-over-year to $954 million. The company’s adjusted EBITDA grew 10.9% from the year-ago value to $7.63 billion, while its adjusted EPS improved 12.5% year-over-year to $0.90.
Street expects KR’s revenue for the fiscal year ending January 2023 to come in at $148.32 billion, indicating an increase of 7.6% year-over-year. The company’s EPS is expected to grow 10.9% year-over-year to $4.08 in the same year. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
It has gained 14.4% over the past year to close the last trading session at $46.56. The stock has gained 4.2% over the past month.
KR has an overall rating of A, which translates to Strong Buy in our proprietary rating system. It has a B grade in Growth, Value, and Quality. KR is ranked #8 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
In addition to the POWR Ratings grades just highlighted, you can see KR ratings for Sentiment, Momentum, and Stability here.
MRK shares were trading at $98.51 per share on Thursday morning, down $0.89 (-0.90%). Year-to-date, MRK has gained 31.79%, versus a -21.10% 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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