The recent ups and downs of the stock market have been jarring inventors of late. Although the latest inflation and employment reports indicate a resilient economy, the Fed’s persistence to quell inflation has caused widespread concerns about an economic slowdown.
While smaller firms might find it hard to withstand a downturn, popular large-cap companies like Johnson & Johnson (JNJ), Visa Inc. (V), and Merck & Co., Inc. (MRK) act as a fortress due to their broad market penetration. Let’s explore more about their strong fundamentals.
On Wednesday, the Fed raised its benchmark interest rate by 0.25% as expected, bringing the range for the fed funds rate to 4.75%-5%, the highest since October 2007. However, the meeting signaled that the end of the Fed’s bruising rate hiking cycle might be in sight.
So far this year, stocks have been resilient in the face of uncertainty, with the S&P 500 up 2.8% year-to-date. But rising concerns over a slowing economy have added to the pressure lately.
Recently, Goldman Sachs Group, Inc. (GS) slashed its 2023 Gross Domestic Product (GDP) forecast by 0.3 percentage points to 1.2%, citing worsening economic conditions from the banking rout.
Amid such widespread economic concerns, investors could consider investing in large-cap companies that are considered safer investments because of their broader market reach and fundamental depth. Moreover, these businesses tend to ride out market risks with solid balance sheets and robust cash flows.
Therefore, it could be wise to add fundamentally sound large-cap stocks JNJ, V, and MRK to your portfolio now, given their ability to stay resilient amid market fluctuation.
Johnson & Johnson (JNJ)
With a market capitalization of $471.50 billion, JNJ is engaged in the research and development, manufacturing, and sale of healthcare products, primarily focused on human health and well-being. It offers its products to the general public, retail outlets and distributors, wholesalers, hospitals, and healthcare professionals.
On March 7, the company paid the first quarter dividend of $1.13 per share on its common stock. JNJ’s four-year average dividend yield is 2.61%, and its current dividend of $4.52 translates to a 2.99% yield on prevailing prices.
Its dividend payouts have grown at a 5.9% CAGR over the past three years and a 6.1% CAGR over the past five years. Also, it has a record of 60 years of consecutive dividend growth.
On March 6, the company announced that late-breaking Phase 3 A DUE data showed that investigational single-tablet combination therapy of macitentan and tadalafil significantly improves pulmonary hemodynamics versus monotherapy in patients with pulmonary arterial hypertension (PAH).
In the same month, JNJ reported final pooled long-term safety results for STELARA (ustekinumab) through five years in adults with moderately to severely active Crohn’s disease and four years in adults with moderately to severely active Ulcerative Colitis (UC), as well as final four-year clinical and endoscopic outcomes from the UNIFI long-term extension study evaluating the efficacy of STELARA for the treatment of adults with moderately to severely active UC.
Such successive trial results should benefit the company significantly in the long run in terms of revenue and effective treatment options.
During the fiscal fourth quarter (ended December 2022), JNJ’s sales to customers amounted to $23.71 billion. The company’s adjusted net earnings grew 9.5% from the same period in the prior year to $6.22 billion, while its adjusted EPS came in at $2.35, representing a 10.3% increase year-over-year.
Street expects JNJ’s revenue to increase marginally year-over-year to $23.58 billion for the fiscal first quarter (ending March 31, 2023). Its EPS is also expected to increase marginally from the prior-year period to $2.61 in the next quarter ending June 2023. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
JNJ’s revenue and EPS grew at a 5% CAGR and a 6.1% CAGR over the past three years, respectively. Its net income has grown at a 5.9% CAGR over the same period.
The stock’s trailing-12-month gross profit margin of 67.36% is 21% higher than the 55.66% industry average. Likewise, its trailing-12-month EBITDA margin of 34.46% is significantly higher than the industry average of 3.39%.
Over the past month, the stock has lost 4.2% to close the last trading session at $151.13.
JNJ’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 assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Value and Quality. The stock is ranked #6 of 167 stocks in the Medical - Pharmaceuticals industry. Click here to see the other ratings of JNJ for Growth, Momentum, and Sentiment.
Visa Inc. (V)
V is a leading payments technology company that facilitates digital payments among consumers, merchants, financial institutions, strategic partners, businesses, and government entities. The company offers its products and services under Visa, Visa Electron, Interlink, VPAY, and PLUS brands. It has a market capitalization of $467.84 billion.
On February 8, 2023, V rolled out new offers focused on helping Small and Micro Businesses (SMBs) accept digital payments and fine-tune their essential systems to grow and build business resilience. With Visa SavingsEdge, SMBs could benefit from offers and discounts with key business-related suppliers while helping to support their bottom line.
V’s four-year average dividend yield is 0.62%, and its current dividend of $1.80 translates to a 0.82% yield on the current price level. Its dividends have grown at a 14.5% CAGR over the past three years and a 17.6% CAGR over the past five years. The company has been growing dividends for 14 consecutive years.
The stock’s trailing-12-month EBITDA margin and levered FCF margin of 70.09% and 50.02% are 236.7% and 176.4% higher than the industry averages of 20.82% and 18.10%, respectively. Likewise, its trailing-12-month ROTA of 17.77% compares with the 1.15% industry average.
During the fiscal first quarter (ended December 31, 2022), V’s net revenues increased 12.4% year-over-year to $7.94 billion. Its operating income rose 6.6% from the year-ago value to $5.09 billion. The company’s non-GAAP net income grew 17.4% from the same period the prior year to $4.58 billion, while its non-GAAP EPS came in at $2.18, representing a 20.4% increase year-over-year.
Analysts expect V’s revenues to increase 7.9% year-over-year to $7.76 billion for the fiscal second quarter (ending March 31, 2023). Its EPS is expected to increase 10.3% year-over-year to $1.98 in the current quarter. Moreover, V surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.
V’s revenue and EBITDA have grown at 8.7% and 8.8% CAGRs over the past three years, respectively, while its levered FCF has grown at a 16.1% CAGR over the same period.
The stock has gained 21% over the past six months to close the last trading session at $222.59.
V’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Stability and Sentiment. The stock is ranked #4 of 46 stocks in the Consumer Financial Services industry. Click here to see the other ratings of V for Growth, Value, and Momentum.
Merck & Co., Inc. (MRK)
With a market capitalization of $264.60 billion, MRK is a global provider of health solutions through its prescription medicines, vaccines, biological therapies, and animal health products. The company operates through two segments: Pharmaceutical and Animal Health.
On March 6, the U.S. Food and Drug Administration (FDA) approved the addition of intramuscular administration for MRK’s MMRV family of vaccines: M-M-RII, VARIVAX, and ProQuad. With the constant innovation of vaccines, this addition is expected to play an important role in the fight against measles, mumps, rubella, and varicella in the United States.
Moreover, this approval enables healthcare professionals to choose to administer all routinely recommended injectable pediatric vaccinations included in the CDC immunization schedule.
On January 11, the company announced the successful completion of the cash tender offer through a subsidiary for all of the outstanding shares of common stock of Imago BioSciences, Inc. (IMGO). In November, MRK announced the acquisition of IMGO to augment and strengthen its pipeline in the growing field of hematology.
On January 24, the company declared a quarterly dividend of $0.73 per share of its common stock for the second quarter of 2023. This dividend is payable on April 10, 2023. MRK’s annual dividend of $2.92 yields 2.80% at the current price level.
Its dividend payouts have increased at an 8.7% CAGR over the past three years and a 9.4% CAGR over the past five years. MRK has a record of 12 years of consecutive dividend growth.
MRK’s trailing-12-month EBITDA margin of 41.08% is significantly higher than the 3.39% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 34.50%, 17.03%, and 13.30% compare with the negative industry averages of 39.67%, 22.02%, and 31.41%, respectively.
During the fiscal year that ended on December 31, 2022, MRK’s net sales increased 21.7% year-over-year to $59.28 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $19.01 billion and $7.48, representing an increase of 39.5% and 39.3% year-over-year, respectively.
The consensus EPS estimate of $8.59 for the fiscal year 2024 represents a 22.5% improvement year-over-year. The consensus revenue estimate of $61.88 billion for the next year indicates a 6.4% increase from the same period in the prior year. The company has an excellent earnings surprise history, surpassing the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past three years, its EBITDA and net income grew at CAGRs of 21.1% and 13.8%, respectively. Also, its EPS has grown at a CAGR of 14.3% over the same period.
Shares of MRK have gained 30.7% over the past year to close the last trading session at $104.23.
MRK’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. It has a B grade for Value, Stability, Sentiment, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #18.
In addition to the POWR Ratings given above, click here to see MRK’s ratings for Growth and Momentum.
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JNJ shares were trading at $152.17 per share on Friday afternoon, up $1.04 (+0.69%). Year-to-date, JNJ has declined -13.24%, versus a 3.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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