Concerns over a fragile financial system after recent bank failures complicate the Fed’s rocky path to slowing the economy. The central bank is now weighing upbeat recent economic data against jittery capital markets in deciding how much higher rates can go when it meets next week. Amid a highly volatile market backdrop, it could be wise to invest in quality stocks Visa Inc. (V), Merck & Co., Inc. (MRK), and Salesforce, Inc. (CRM).
Turmoil in the financial sector continues to weigh on stocks following the collapse of Silicon Valley Bank last Friday and the closure of Signature Bank of New York on Sunday. Recent high-profile bank failures complicate the Federal Reserve’s fight to control stubborn inflation.
The consumer price index (CPI) rose 0.4% in February and 6% year-over-year, in line with market expectations. Inflation eased slightly from January but is still elevated, putting the Fed in a tough position. Recent economic data showing jobs growth, strong retail sales, and high inflation levels will likely keep the Fed on track for another rate hike next week, despite the recent banking industry turmoil.
According to a CME Group estimate, traders assigned more than 82% probability of a 25-basis-point increase when the Federal Open Market Committee (FOMC) meets next week, taking the fed funds rate to a 4.75%-5% range.
Moreover, a chief economist at LPL Financial, Jeffrey Roach, said, “Even amid current banking scares, the Fed will still prioritize price stability over growth and likely hike rates by 0.25% at the upcoming meeting.”
On the other hand, Goldman Sachs Group Inc. (GS) expects the Fed to pass up the chance to hike rates at its next meeting on March 22. “We think Fed officials are likely to prioritize financial stability for now, viewing it as the immediate problem and high inflation as a medium-term problem,” Goldman economists told clients in a note.
Although GS suggests that the central bank will likely skip a hike this month, it still expects to see quarter-point increases in May, June, and July, reiterating the terminal rate expectations of 5.25% to 5.5%.
As the stock market is expected to remain highly volatile in the upcoming months, colossal stocks V, MRK, and CRM could be safe investments for potential gains.
Let’s discuss what could influence the performance of these stocks in the near term.
Visa Inc. (V)
With a $459.58 billion market cap, V is a global payments technology company. It operates VisaNet, a transaction processing network. The company also provides credit, debit, and prepaid card products; Visa Direct, a real-time payments network; Visa B2B Connect, a cross-border consumer payments business; Cybersource, a payment management platform; and more.
On February 8, 2023, V introduced new offers aimed at assisting small and micro businesses (SMBs) to accept digital payments, refine their essential systems, and save on the technology required to build business resilience. With Visa SavingsEdge, Visa Small Business cardholders can unlock automatic savings on business-related services and goods through their card issuer.
In addition, SMBs can take advantage of Authorize.net’s two-day offer, including waived transaction and gateway monthly account fees for the life of the account. This might benefit the company significantly.
On December 14, 2022, V announced to invest $1 billion in Africa over the next five years to advance resilient, innovative, and inclusive economies across the continent. The company’s entry into Africa would help capitalize on the rise in digital payments.
For the fiscal 2023 first quarter ended December 31, 2022, V’s net revenues grew 12.4% year-over-year to $7.94 billion. Its operating income rose 6.6% from the year-ago value to $5.09 billion. Also, the company’s non-GAAP net income and non-GAAP EPS grew 17.4% and 20.4% year-over-year to $4.58 billion and $2.18, respectively.
The consensus revenue estimate of $32.29 billion for the fiscal year (ending September 2023) reflects a 10.2% year-over-year improvement. Likewise, the consensus EPS estimate of $8.47 for the ongoing year indicates a 13% rise year-over-year. Moreover, the company surpassed its consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Shares of V have gained 9.7% over the past six months to close the last trading session at $218.66.
V’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a grade A for Quality and a B for Stability and Sentiment. In the 48-stock Consumer Financial Services industry, it is ranked #8.
Beyond what we stated above, we also have V’s Growth, Value, and Momentum ratings. Get all V ratings here.
Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health. The company serves drug retailers, hospitals, managed health care providers, physician distributors, and government agencies. It has a market capitalization of $271.55 billion.
On March 6, 2023, MRK announced that the U.S. Food and Drug Administration (FDA) approved the addition of the intramuscular (IM) route of administration to the United States Product Insert (USPI) for the MMRV family of vaccines, including M-M-R®II, VARIVAX®, and ProQuad®.
On January 27, MRK announced that the FDA 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.
Such developments are expected to boost the company’s profitability and growth.
For the fourth quarter that ended December 31, 2022, MRK’s total sales increased 2.3% year-over-year to $13.83 billion. Its pharmaceutical sales grew 1% year-over-year to $12.18 billion. Excluding the unfavorable impact of foreign exchange, pharmaceutical sales increased 9% year-over-year, primarily driven by oncology and hospital acute care.
Growth in oncology was driven by higher sales of KEYTRUDA, which rose 19% from the year-ago value to $5.50 billion. Also, growth in hospital acute care reflects higher sales of ZERBAXA, which grew 390% year-over-year to $49 million.
Analysts expect MRK’s revenue for the fiscal year (ending December 2024) to increase 6.4% from the prior year to $61.89 billion. The company’s EPS for the next year is expected to grow 22.4% year-over-year to $8.61. It surpassed the consensus EPS estimates in all four trailing quarters.
Over the past year, the stock has gained 37.5% and 23% over the past six months to close the last trading session at $106.97.
MRK’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
MRK has a B grade for Value, Stability, and Quality. MRK is ranked #19 out of 168 stocks in the Medical – Pharmaceuticals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MRK’s Growth, Sentiment, and Momentum ratings here.
Salesforce, Inc. (CRM)
With a $182.89 billion market cap, CRM operates as a cloud-based software company. It provides customer relationship management software and applications focused on sales, marketing automation, e-commerce, customer service, and application development.
On March 7, 2023, CRM launched Einstein GPT, the world’s first generative AI CRM technology, which delivers AI-created content across every sales, service, marketing, commerce, and IT interaction at a hyper-scale. With Einstein GPT, Salesforce will transform every customer experience with generative AI.
On January 12, CRM introduced a series of new retail innovations to help personalize every shopping moment.
Jujhar Singh, EVP and GM of Salesforce Industries, said, “Salesforce for Retail brings together the power and flexibility of Salesforce's platform with an expansive ecosystem so retailers can leverage real-time data to acquire new customers, deliver personalized experiences, generate advertising revenue, increase margins, and drive efficiency.”
CRM’s total revenues increased 14.4% year-over-year to $8.38 billion in the fiscal fourth quarter that ended January 31, 2023. Its gross profit rose 18.3% year-over-year to $6.28 billion. Also, the company’s income from operations came in at $357 million, compared to a loss from operations of $176 million in the previous-year quarter.
Analysts expect CRM’s revenue and EPS to grow 10.4% and 36.2% year-over-year to $34.62 billion and $7.14 for the fiscal year ending January 2024, respectively. The company’s revenue and EPS for fiscal 2025 are expected to increase 11.1% and 22.1% year-over-year to $38.45 billion and $8.71, respectively.
Additionally, CRM has topped the consensus EPS and revenue estimates in each of the trailing four quarters. The stock has gained 7.5% over the past month and 14.1% over the past six months to close the last trading session at $182.89.
CRM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
CRM has an A grade for Growth and Sentiment. The stock also has a B grade for Quality. It is ranked #19 out of 134 stocks in the Software – Application industry.
Click here to access additional ratings for CRM’s Value, Stability, and Momentum.
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V shares fell $5.59 (-2.56%) in premarket trading Wednesday. Year-to-date, V has gained 3.12%, versus a 0.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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