October’s Consumer Price Index (CPI) report sparked a strong stock market rally as it showed signs of abating inflationary pressure. Moreover, the latest Producer Price Index (PPI) report that measures wholesale inflation rose 0.2% in October, below the Dow Jones 0.4% estimate, while the CPI showed a monthly gain of 0.4%, lower than the 0.6% estimate.
Fed Vice Chair Lael Brainard signaled that the Federal Reserve would likely soon slow its interest rate hikes. This is raising hopes that the economy might be able to avoid a recession. CNBC’s Jim Cramer said that he believes the Fed could successfully pull off its aggressive interest rate hikes and tamp down inflation without tipping the economy into a recession.
Therefore, investors could consider buying fundamentally solid healthcare stocks, Merck & Co., Inc. (MRK) and Gilead Sciences, Inc. (GILD), which have been surging in price and might continue to deliver steady returns. Moreover, these stocks have a solid record of paying regular dividends. In addition, investing in healthcare stocks tends to help investors hedge against economic uncertainties.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company operating through two broad segments: Pharmaceutical and Animal Health. The Pharmaceutical segment offers human health pharmaceutical products, while the Animal Health segment develops and markets veterinary pharmaceuticals.
On November 14, MRK and AstraZeneca announced that the CHMP adopted a positive opinion for the approval of LYNPARZA to treat patients with metastatic castration-resistant prostate cancer (mCRPC) in whom chemotherapy is not clinically indicated. It should help the company provide a much-needed new treatment option to patients if approved.
On November 1, MRK and Veeva Systems (VEEV) announced a ten-year strategic partnership agreement to help accelerate MRK’s digital strategy and make the company more efficient in evaluating, purchasing, operating, and creating value from Veeva products and services. This should help the company leverage innovative technology and deliver value to its stakeholders.
MRK’s $2.76 annual dividend yields 2.77% at its current share price. 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. Its dividend payouts have increased at a 9.6% CAGR over the past three years and a 9% CAGR over the past five years. 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, while 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% year-over-year increase. The consensus EPS estimate of $7.38 indicates a 22.6% improvement from the same period last year. The company has an impressive surprise earnings history, as it has surpassed Street EPS estimates in all four trailing quarters.
The stock has gained 30% year-to-date to close its last trading session at $99.60. It increased by 8.1% 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 Value, Sentiment, and Quality. Of the 162 stocks in the Medical – Pharmaceuticals industry, it is ranked #10.
Click here to see additional POWR Ratings for Momentum, Growth, and Stability for MRK.
Gilead Sciences, Inc. (GILD)
GILD operates as a biopharmaceutical company that discovers, develops, and commercializes medicines for unmet medical needs in the United States, Europe, and internationally.
On November 2, GILD announced that the U.S. Food and Drug Administration (FDA) approved the supplemental new drug application for Vemlidy® (tenofovir alafenamide) as a treatment for chronic hepatitis B virus (HBV) infection and compensated liver disease. This marks a significant milestone for the company.
On October 27, GILD declared a quarterly dividend of $0.73 per share on its common stock, which is payable to shareholders on December 29. GILD’s $2.92 annual dividend yields 3.52% at its current share price. Its dividend payouts have increased at a 5.6% CAGR over the past three years and a 7.4% CAGR over the past five years. The company has a history of hiking dividends for six consecutive years.
For the fiscal third quarter that ended September 30, GILD’s total revenues came in at $7.04 billion. The company generated $2.9 billion in operating cash flow in the same period. Moreover, its non-GAAP EPS stood at $1.90.
Street expects GILD’s EPS for the fiscal fourth quarter ending December 2022 to come in at $1.49, indicating an increase of 115.3% year-over-year. The company also beat the consensus EPS estimates in three of the trailing four quarters.
GILD’s stock has gained 23.5% over the past year and 14.3% year-to-date to close the last trading session at $83.00.
It is no surprise that the stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
GILD also has an A grade for Sentiment and Value and a B for Quality. Within the 381-stock Biotech industry, it is ranked #3.
Beyond what is stated above, we have also given GILD grades for Growth, Momentum, and Stability. Get access to all GILD ratings here.
MRK shares were trading at $99.54 per share on Wednesday afternoon, down $0.06 (-0.06%). Year-to-date, MRK has gained 33.17%, versus a -15.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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