While the stock market remained under pressure last year amidst significant macroeconomic headwinds, it made a strong start to this year, amid expectations that the slowdown in inflation would prompt the Federal Reserve to pause and even cut rates sooner than expected.
However, following January’s robust labor market data, the market is fueled by tighter rate hike fears and widespread recession concerns.
Jamie Dimon, CEO of JPMorgan Chase & Co. (JPM), the biggest U.S. bank, cautioned against declaring victory against inflation too early and warned that the Federal Reserve could raise interest rates above the 5% mark if higher prices ended up “sticky.”
On the other hand, Fed Governor Lisa Cook recently said, “it is appropriate to move in smaller steps while we assess the effects of our cumulative tightening in the economy and inflation.”
Cook also said the substantial job gain coupled with moderating wage growth last month had increased hopes for a “soft landing” scenario in which the central bank can tame inflation without triggering a recession.
Moreover, the International Monetary Fund (IMF) revised its global growth forecast for the year and now expects the global economy to grow 2.9% this year, a 0.2% increase from its prior projection in October.
Given this backdrop, fundamentally strong stocks Merck & Co., Inc. (MRK), Novartis AG (NVS), Sysco Corporation (SYY), Progress Software Corporation (PRGS), and LSI Industries Inc. (LYTS) might be solid buys for 2023. These companies also pay stable dividends.
Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments: Pharmaceutical and Animal Health.
On January 27, MRK announced that the U.S. Food and Drug Administration (FDA) had approved KEYTRUDA, its anti-PD-1 therapy, as a single agent, for adjuvant treatment following surgical resection and platinum-based chemotherapy for adult patients with stage IB II, or IIIA non-small cell lung cancer.
MRK has paid dividends for 12 consecutive years. Its dividend payouts have increased at 9.1% CAGR over the past three years. Its annual dividend of $2.92 yields 2.74% on the prevailing price, and its four-year average yield is 2.95%.
MRK’s total sales rose 2.3% year-over-year to $13.83 billion for the fourth quarter that ended December 31, 2022. Its Pharmaceutical segment revenue increased marginally year-over-year to $12.18 billion. Its non-GAAP net income stood at $4.13 billion, and its non-GAAP EPS came in at $1.62.
Analysts expect MRK’s EPS and revenue to be $7.18 and $58.28 billion for the current fiscal year, 2023. The company has surpassed the consensus EPS estimates in all four trailing quarters, which is impressive.
Over the past year, the stock has gained 38.7% to close the last trading session at $106.64. Its 24-month beta is 0.18.
MRK’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MRK has a B grade for Value, Stability, and Quality. MRK is ranked #16 out of 172 stocks in the Medical – Pharmaceuticals industry.
Click here for additional Growth, Sentiment, and Momentum grades for MRK.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments, Innovative Medicines, and Sandoz.
On February 6, NVS announced that the US Food and Drug Administration (FDA) had accepted its Biologics License Application (BLA) for proposed biosimilar denosumab.
In the US, more than 10 million adults over age 50 are estimated to have osteoporosis, of whom more than 80% are women. It is predicted that one in two of these women and one in four men will have an osteoporosis-related fracture in their lifetimes. The acceptance should benefit the company.
While NVS’ four-year average dividend yield is 3.58%, and its current annual dividend of $3.47 translates to a 3.99% yield on the current market price. NVS has paid dividends for 25 consecutive years. Over the last three years, its dividend payouts have grown at a 5.5% CAGR.
NVS’ core operating income rose 5.5% year-over-year to $4.03 billion for the fourth quarter that ended December 31, 2022. Its core net income increased 3.7% year-over-year to $3.25 billion. In addition, its core EPS increased 8.6% year-over-year to $1.52.
NVS’ revenue is expected to increase 2.1% year-over-year to $12.80 billion in the fiscal first quarter ending March 2023. Its EPS is expected to rise 8.2% year-over-year to $1.58 in the same quarter. It surpassed EPS estimates in three of all four trailing quarters.
The stock has gained 6.8% over the past three months to close the last trading session at $86.89. It has a 24-month beta of 0.29.
NVS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
NVS has an A grade for Stability and a B for Sentiment, Value, and Quality. It is ranked #2 in the Medical – Pharmaceuticals industry.
Beyond what we’ve stated above, we have also given NVS grades for Growth and Momentum. Get all the NVS ratings here.
Sysco Corporation (SYY)
SYY engages in the marketing and distribution of various food and related products primarily to the food service or food-away-from-home industry in the United States, Canada, the United Kingdom, France, and internationally. It operates through U.S. Foodservice Operations; International Foodservice Operations; SYGM; and Other segments.
On February 8, SYY launched its new ‘Recipe for Sustainability’ program, through which the company will collaborate with top universities to explore innovations that will accelerate climate action and lead the industry towards a more sustainable future. This aligns with the company’s sustainability initiatives.
SYY pays $1.96 annually as dividends. This translates to a yield of 2.57% at the current price, compared to the 4-year average dividend yield of 2.41%. Its dividend payments have grown at CAGRs of 6.2% and 7.5% over the past three and five years, respectively.
SYY’s non-GAAP sales increased 16% year-over-year to $18.93 billion in the second quarter, which ended December 31, 2022. The company’s non-GAAP gross profit increased 18.2% year-over-year to $3.42 billion, while its non-GAAP operating income rose 37.8% year-over-year to $682.99 million. Also, its non-GAAP EPS increased 40.4% year-over-year to $0.80.
Street expects SYY’s revenue to rise 10.9% year-over-year to $76.10 billion in the current fiscal year ending June 2023. The company’s EPS is expected to increase by 24.4% from the prior year to $4.04. Additionally, it has topped consensus revenue estimates in each of the trailing four quarters.
The stock declined 1.4% intraday, closing the last trading session at $76.22.
SYY has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has a B grade for Growth, Stability, and Value. It is ranked #8 out of 82 stocks in the B-rated Food Makers industry.
To access additional ratings for SYY’s Sentiment, Quality, and Momentum, click here.
Progress Software Corporation (PRGS)
PRGS develops, deploys, and manages business applications. The company provides OpenEdge, an application development platform for operating business-critical applications. It also provides training services, web-enabled apps, custom development, project management, and other services.
On February 7, PRGS announced the completion of the acquisition of MarkLogic, a leader in complex data and semantic metadata management and a Vector Capital portfolio company.
MarkLogic is expected offer a unified enterprise-grade semantic data platform that enables users to extract value from complex data and drive significant growth for PRGS.
The company pays a $0.70 dividend annually, translating to a 1.22% yield on the current price level. Its four-year average dividend yield is 1.54%, and its dividend payouts have increased at a 6.3% CAGR over the past five years.
During the fiscal fourth quarter that ended November 30, PRGS’ non-GAAP revenue increased 10.7% year-over-year to $159.17 million, and its non-GAAP income from operations rose 20% year-over-year to $61.98 million. Moreover, the company’s non-GAAP net income and EPS came in at $49.24 million and $1.12, up 19.2% and 21.7% year-over-year, respectively.
The consensus revenue estimate of $158.62 million for the fiscal first quarter ending February 2023 reflects a 7.5% year-over-year improvement. The consensus EPS estimate of $1.05 for the same quarter indicates an 8.1% rise from the prior-year quarter. Moreover, PRGS surpassed its consensus EPS estimates in all four trailing quarters.
Shares of PRGS have gained 26.2% over the past year to close the last trading session at $57.15. It has a 24-month beta of 0.90.
It’s no surprise that the stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
PRGS has an A grade for Quality and a B for Growth, Value, and Stability. Within the 136-stock Software - Application industry, it is ranked first.
In addition to POWR Ratings just highlighted, one can access Momentum and Sentiment grades for PRGS here.
LSI Industries Inc. (LYTS)
LYTS produces and sells non-residential lighting and retail display solutions in the United States, Canada, Mexico, Australia, and Latin America. It operates in two segments: Lighting; and Display Solutions.
On January 10, LYTS announced that its turnkey solar installation at a Speedy Stop refueling and convenience store in Austin, Texas, generated significant consumer energy savings and carbon footprint reduction. On an annual basis, the system generates 170 megawatt-hours of electricity.
James A. Clark, LYTS’ President and CEO said, “This installation demonstrates LSI’s ability to provide innovative turnkey energy solutions while expanding our presence within other growing markets, including those well-aligned with our long-term plans.”
LYTS pays an annual dividend of $0.20, which yields 1.44% on the current market price and has a four-year average yield of 3.30%.
LYTS’ net sales rose 15.9% year-over-year to $128.80 million in the fiscal 2023 second quarter that ended December 31, 2022. Its adjusted EBITDA increased 54% year-over-year to $12.98 million. The company’s adjusted net income rose 79.8% from the prior-year quarter to $7.63 million, while its adjusted EPS grew 73.3% year-over-year to $0.26.
Street EPS estimate of $0.78 for the current fiscal year ending June 2023 reflects a rise of 45.1% year-over-year. Its revenue estimate for the current year of $496.69 million indicates an improvement of 9.1% from the prior year. Additionally, LYTS has topped consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 118.6% over the past six months to close the last trading session at $13.88. Its 24-month beta is 0.24.
LYTS’ robust prospect is reflected in its POWR Ratings. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
LYTS has an A grade for Value and Sentiment and B grade for Quality. The stock is ranked #3 among 91 stocks in the B-rated Industrial – Equipment industry.
Click here, to access the additional POWR Ratings for LYTS (Growth, Momentum, and Stability).
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MRK shares were trading at $107.24 per share on Thursday morning, up $0.60 (+0.56%). Year-to-date, MRK has declined -3.34%, versus a 8.23% 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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