The U.S. economy is in a bit of a tough spot. The second-quarter GDP declined 0.9% after falling at an annualized rate of 1.6% in the first quarter. These figures mark a sharp contrast to the roaring 6.9% annual increase in GDP recorded in the final quarter of 2021, as the economy recovered from the global pandemic.
Although there has been an improvement in the inflation reading, it is still significantly high as consumers pay 8.5% more this year than last year for the same goods and services. San Francisco Federal Reserve Bank President Mary Daly has repeated her view that rates need to rise to about 3.4% this year and higher next year to restrict inflation.
Moreover, according to Bank of America Corp. (BAC), markets are still pessimistic. Its Bull & Bear Indicator showed that investor sentiment stayed at ‘max bearish’ as investors feared that a global recession might hit within a year.
Amid this backdrop, we think the fundamentally strong stocks Merck & Co., Inc. (MRK) and Centene Corporation (CNC) might be solid buys to ride out a recession.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company operating through Pharmaceuticals and Animal Health segments. Its pharmaceuticals segment markets human health pharmaceuticals and vaccines, while the Animal Health segment offers veterinary pharmaceuticals, vaccines, and monitoring products.
On August 4, MRK and AstraZeneca plc (AZN) announced that the European Commission (EC) approved LYNPARZA as monotherapy or in combination with endocrine therapy for the adjuvant treatment of adult patients. This might add to the company’s topline.
On July 26, MRK declared a quarterly dividend of $0.69 per share of its common stock for the fourth quarter of 2022, payable to shareholders on October 27. This reflects upon the cash generation ability of the company.
MRK’s sales were up 28% year-over-year to $14.59 billion for the fiscal second quarter of 2022. Non-GAAP net income that excludes certain items improved 204.2% from the prior-year quarter to $4.74 billion. Non-GAAP EPS that excludes certain items increased 206.6% from the same period the prior year to $1.87.
Street expects MRK’s EPS to improve 22.4% year-over-year to $7.37 for the fiscal year 2022, while Street's revenue estimate of $58.70 billion for the same year indicates a rise of 20.5% from the prior year. In addition, MRK has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 16.3% over the past year and 18.2% year-to-date to close its last trading session at $90.59.
MRK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MRK has a B in Growth, Value, Sentiment, and Quality. In the 170-stock Medical – Pharmaceuticals industry, it is ranked #2. Click here to see the additional POWR Ratings for MRK (Momentum and Stability).
Centene Corporation (CNC)
CNC is a multinational healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. The company operates through its broad segments of Managed Care and Specialty Services.
On August 10, CNC announced that its Mississippi subsidiary Magnolia Health Plan had been awarded the Mississippi Division of Medicaid (DOM) contract to continue serving the state’s Coordinated Care Organization Program. This contract might benefit the company.
On July 25, CNC announced that it had signed a definitive agreement to sell its Spanish and Central European businesses to Vivalto Santé. “This transaction represents another significant milestone in our value creation plan and ongoing portfolio review,” said Sarah London, CEO of CNC.
For the fiscal second quarter ended June 30, CNC’s total revenues increased 15.8% year-over-year to $35.94 billion. Adjusted net earnings and adjusted EPS came in at $1.04 billion and $1.77, up 41.4% and 41.6% from the same period the prior year.
The consensus EPS estimate of $5.70 for fiscal 2022 indicates a 10.7% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $143.48 billion reflects an improvement of 13.9% from the prior year. Moreover, CNC has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
CNC’s shares have gained 50.4% over the past year and 16.9% year-to-date to close its last trading session at $96.33.
It’s no surprise that CNC has an overall A rating, which translates to Strong Buy in our POWR Ratings system.
CNC has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #3 out of the 11 stocks in the Medical – Health Insurance industry. The industry is rated A. To see the additional POWR Ratings for Momentum and Stability for CNC, click here.
MRK shares were trading at $91.20 per share on Wednesday morning, up $0.61 (+0.67%). Year-to-date, MRK has gained 21.04%, versus a -9.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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