The consumer price index (CPI) for December 2022 met expectations by falling for the sixth consecutive month to register an increase of 6.5% year-over-year. This has helped the market, living in trepidation since the beginning of monetary tightening by the Federal Reserve, catch its breath.
However, since Jerome Powell and his team of central bankers have cautioned time and again against premature complacency in the current campaign against inflation, the Fed might be unlikely and unwilling to take their foot off the brake.
Hence, given the gap between the current inflation rate and the 2% level targeted by the Fed and a 0.3% increase in core (excluding food and energy) inflation, the reprieve may be short-lived, and the bear market rally may be followed by larger drawdowns, driven by sell-offs from disappointed speculators with unrealistic expectations.
With further, albeit slower, rate hikes by the Fed and other major central banks following suit all but certain and the World bank slashing its 2023 global economic growth outlook to 1.7%, it seems unlikely that the market will return to stability anytime soon.
Hence, for investors aged 55 and above, the most suitable stocks belong to fundamentally strong businesses which serve basic and ever-growing needs and operate profitably enough to pay consistent dividends.
To that end, seniors could bank on time-tested stocks Eli Lilly & Co. (LLY), Merck & Co., Inc. (MRK), and Archer-Daniels-Midland Company (ADM) for consistent compounding and steady income generation.
Eli Lilly & Co. (LLY)
LLY discovers, develops, and markets human pharmaceuticals worldwide. The company provides diabetes, oncology, neuroscience, and other products.
On December 22, 2022, LLY and ProQR Therapeutics N.V. (PRQR) announced the expansion of their licensing and collaboration agreement focused on the discovery, development, and commercialization of new genetic medicines. The new agreement supports the discovery and development of additional assets directed toward high-conviction targets utilizing PRQR’s Axiomer technology.
On December 13, LLY announced its 2023 financial guidance. The company expects its revenue to range between $30.3 billion and $30.8 billion, driven by growth in volumes; potential launches for donanemab, mirikizumab, lebrikizumab, and pirtobrutinib; potential regulatory submissions for tirzepatide in obesity; and numerous other anticipated pipeline advancements.
As a result of the above headwinds, LLY expects its non-GAAP EPS for 2023 to be in the range of $8.10 to $8.30.
On December 12, LLY announced a dividend of $1.13 per share, representing a 15% increase in its quarterly dividend. The dividend is payable on March 10, 2023, to shareholders of record at the close of business on February 15.
LLY pays $4.52 annually as dividends. This translates to a yield of 1.25% at the current price, comparable to the 4-year average dividend yield of 1.65%. The company’s dividend payouts have grown for 8 consecutive years and at a 13.5% CAGR over the past five years.
On December 1, LLY announced the successful completion of its acquisition of Akouos, Inc. (AKUS). It would expand LLY’s efforts in genetic medicines to include AKUS’s portfolio of potential first-in-class adeno-associated viral gene therapies for treating inner ear conditions, including sensorineural hearing loss.
For the third quarter of fiscal 2022, which ended September 30, LLY’s revenue increased 2.5% year-over-year to $6.94 billion, primarily driven by volume growth of key growth products. The company’s non-GAAP net income increased 10.8% year-over-year to $1.79 billion during the same period. This translated to a non-GAAP quarterly EPS of $1.98, up 11.8% year-over-year.
The consensus revenue estimate of $30.56 billion for fiscal 2023, ending December 2023, represents a 6.6% improvement year-over-year. Also, Street expects LLY’s EPS to grow 6.4% year-over-year to $8.29 during the same period.
The stock has gained 11% over the past six months and 40.3% over the past year to close the last trading session at $359.12.
LLY has an overall rating of B, which translates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
LLY also has a B grade for Stability and Quality. It is ranked #29 of 166 stocks in the Medical – Pharmaceuticals industry.
Additional ratings for LLY’s Growth, Value, Momentum, and Sentiment can be found here.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company offering prescription medicines, vaccines, biological therapies, and animal health products. The company operates through Pharmaceuticals and Animal Health segments.
On January 11, MRK announced the successful completion of the cash tender offer for all of the outstanding shares of common stock of Imago BioSciences, Inc. (IMGO). This was preceded by MRK’s November 21 announcement to acquire IMGO for $36.00 per share in cash for an approximate total equity value of $1.35 billion.
According to Robert M. Davis, president and chief executive officer of MRK, this acquisition would augment the company’s pipeline and strengthen its presence in the growing field of hematology.
On January 9, MRK paid its quarterly dividend of $0.73 per share. The company pays a $2.92 per share dividend annually, which translates to a 2.63% yield on the current price. This compares to its 4-year average yield of 2.95%. The current dividend payout ratio is 35.51%. The company’s dividend payouts have grown for 12 consecutive years.
On December 22, 2022, MRK announced that it has entered into an exclusive license and collaboration agreement with Kelun-Biotech to develop seven investigational preclinical antibody-drug conjugates (ADC) for the treatment of cancer.
Under the agreement, MRK has exclusive global licenses to research, develop, manufacture and commercialize multiple investigational preclinical ADC therapies and exclusive options to obtain additional licenses for ADC candidates.
In the fiscal 2022 third quarter ended September 30, 2022, MRK’s sales increased 13.7% year-over-year to $14.96 billion. The company’s non-GAAP net income grew 3.9% from the year-ago quarter to $4.70 billion, or $1.85 per share.
Analysts expect MRK’s revenue for fiscal 2022 to come in at $59.14 billion, indicating an increase of 21.4% year-over-year. During the same period, the company’s EPS is also expected to increase 22.8% year-over-year to $7.39. Furthermore, MRK’s purple patch has witnessed it topping consensus EPS estimates in each of the trailing four quarters.
The stock has gained 3.2% over the past month and 19.4% over the past six months to close the last trading session at $111.77.
MRK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Sentiment, and Quality.
MRK is ranked #12 of 166 stocks in the Medical – Pharmaceuticals industry.
Click here to see MRK’s POWR Ratings for Growth, Stability, and Momentum.
Archer-Daniels-Midland Company (ADM)
ADM operates as an agricultural origination and processing company. It develops sustainable solutions in agriculture, energy, and bio-based alternatives to materials and fuels produced from petroleum products. The company operates through three segments: Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition.
On December 7, 2022, ADM paid its 364th consecutive quarterly cash dividend of $0.40 per share, marking a record of 91 years of uninterrupted dividends.
ADM pays a $1.60 per share dividend annually, translating to a yield of 1.85% at the current price. The company’s dividend payouts have grown at 4.6% CAGR over the past five years.
On September 14, ADM and PepsiCo (PEP) announced a 7.5-year strategic commercial agreement to collaborate on projects that aim to expand regenerative agriculture. The partnership is expected to reach up to 2 million acres by 2030, and reaching the partnership’s goals could eliminate 1.4 million metric tons of greenhouse gases. This should benefit ADM.
For the fiscal third quarter that ended September 30, 2022, ADM’s revenues increased 21.4% year-over-year to $24.68 billion. Its adjusted net earnings increased 91.2% year-over-year to $1.05 billion. Additionally, its adjusted EPS came in at $1.86, representing a 91.8% increase from the prior-year quarter.
ADM’s revenue and EPS for the fiscal ended December 31, 2022, are expected to increase 18.6% and 45.4% year-over-year to $101.09 billion and $7.55, respectively. The stock has further impressed by surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 20% over the past six months and 24.1% over the past year to close the last trading session at $87.39.
ADM’s strong fundamentals have earned it an overall A rating, which translates to a Strong Buy in our POWR Ratings system. It also has an A grade for Growth and a B for Sentiment.
ADM is ranked #2 out of 28 stocks in the Agriculture industry.
Click here for additional ratings for ADM’s Value, Momentum, Stability, and Quality.
LLY shares were trading at $361.19 per share on Friday afternoon, up $2.07 (+0.58%). Year-to-date, LLY has declined -1.27%, versus a 4.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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