The Fed’s aggressive rate hikes to curb sky-high inflation have created market volatility. The S&P 500 index is down about 20% this year. Despite market uncertainties, medical stocks tend to perform relatively well due to the inelastic demand for medical products and services.
In addition, the Centers for Medicare & Medicaid Services (CMS) predicts healthcare spending in the United States to reach $6.20 trillion by 2028, growing at a 5.4% CAGR.
Increasing drug innovation and technological advancements are acting as major tailwinds for the healthcare industry. The pharmaceutical market is expected to grow at a CAGR of 8.5% to reach $1.73 trillion in 2023. The market is expected to reach $2.05 trillion in 2025 and $3.20 trillion in 2030.
Given the industry’s long-term growth aspects, it might be wise to consider fundamentally strong medical stocks Johnson & Johnson (JNJ), AbbVie Inc. (ABBV), and Merck & Co., Inc. (MRK).
Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company operates through the broad segments of Consumer Health; Pharmaceuticals; and MedTech.
On November 1, JNJ announced that it had entered into a definitive agreement with Abiomed, Inc. (ABMD) to acquire all outstanding ABMD shares through a tender offer for an upfront payment of $380.00 per share in cash. Through this agreement, JNJ’s MedTech segment’s position as a cardiovascular innovator is expected to broaden.
On September 20, JNJ opened its San Francisco Bay Campus, a cutting-edge Research and Development (R&D) center in the Bay Area. JNJ’s Chief Executive Officer, Joaquin Duato, said, “Johnson & Johnson’s expanded presence in the Bay Area affirms our commitment to combining science and technology to deliver transformative healthcare solutions.”
On October 19, 2022, JNJ declared a regular dividend of $1.13 per share, payable to shareholders on December 6, 2022. This reflects upon the company’s strong cash generation ability.
For the fiscal third quarter of 2022, JNJ’s reported sales grew 1.9% from the year-ago value to $23.79 billion, while its net earnings improved 21.6% year-over-year to $4.46 billion. The company’s net earnings per share rose 22.6% from its year-ago value to $1.68.
For the fiscal year ending December 2022, the consensus EPS estimate of $10.04 indicates a 2.5% improvement year-over-year. Its revenue is expected to increase by 1.4% year-over-year to $95.04 billion for the same year. Additionally, JNJ has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 8% over the past month to close its last trading session at $172.98. It has gained 5.8% over the past year. JNJ’s stock is trading higher than its 50-day and 200-day moving averages of $165.95 and $172, respectively, indicating an upward momentum.
JNJ’s POWR Ratings reflect this promising outlook. The company 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.
JNJ is rated an A in Stability and a B in Quality. Within the Medical – Pharmaceuticals industry, it is ranked #9 out of 163 stocks.
To see additional POWR Ratings for Momentum, Growth, Value, and Sentiment for JNJ, click here.
AbbVie Inc. (ABBV)
ABBV is a research-based biopharmaceutical company that develops, manufactures, and sells pharmaceuticals worldwide. The company’s product offerings include HUMIRA, SKYRIZI, and RINVOQ.
On October 28, ABBV declared an increase in its quarterly dividend from $1.41 per share to $1.48 per share, reflecting an increase of approximately 5%. The company’s strong commitment to return cash to shareholders through a growing dividend has been reflected here.
On October 21, ABBV announced that the U.S. Food and Drug Administration (FDA) had approved RINVOQ® (upadacitinib 15 mg, once daily) to treat adults with active non-radiographic axial spondyloarthritis (nr-axSpA) with objective signs of inflammation who have had an inadequate response or intolerance to tumor necrosis factor (TNF) blocker therapy. This should benefit the company.
On October 20, ABBV announced the acquisition of DJS Antibodies Ltd, a privately held U.K.-based biotechnology company. This acquisition is expected to enhance the company’s operative capability.
ABBV’s net revenues increased 3.3% year-over-year to $14.81 billion in the fiscal third quarter ended September 30, 2022. The company’s earnings amounted to $4.60 billion, up 6.9% year-over-year. ABBV’s adjusted EPS grew 29.3% year-over-year to $3.66.
For the fiscal fourth quarter ending December 2022, analysts expect ABBV’s revenue to come in at $15.33 billion, indicating an increase of 3% year-over-year. The consensus EPS estimate of $3.66 for the same quarter indicates a 10.5% year-over-year increase. The company has surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of ABBV have gained 6.7% over the past month and 26.4% over the past year to close the last trading session at $148.10. ABBV’s stock is trading higher than its 50-day and 200-day moving averages of $142.43 and $147.65, respectively, indicating an uptrend.
ABBV has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It also has an A grade for Quality and a B for Value and Growth. It is ranked #10 in the Medical – Pharmaceuticals industry.
Beyond what has been stated above, we’ve also rated ABBV for Sentiment, Momentum, and Stability. Click here to see all POWR Ratings of ABBV.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company operating through its two broad segments, Pharmaceutical, which offers human health pharmaceutical products; and Animal Health, which develops, manufactures, and markets veterinary pharmaceuticals.
On November 1, MRK and Veeva Systems Inc. (VEEV) announced a ten-year strategic partnership agreement. The partnership is expected to help accelerate MRK’s digital strategy and reduce operational costs.
On September 22, Merck Animal Health announced that it had signed a definitive agreement to acquire Vence, a virtual fencing innovator for rotational grazing and livestock management. This should broaden the company’s portfolio.
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. This underscores the company’s shareholder return ability.
For the fiscal third quarter ended September 2022, MRK’s sales increased 13.7% year-over-year to $14.96 billion. The company’s non-GAAP net income that excludes certain items grew 3.9% year-over-year to $4.70 billion. Its non-GAAP EPS that excludes certain items rose 3.9% year-over-year to $1.85.
MRK’s revenue for the fiscal year ending December 2022 is expected to increase 21.3% year-over-year to $59.07 billion. The consensus EPS estimate of $7.38 indicates a 22.6% increase year-over-year. The company has an impressive surprise earnings history, as it has surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 30.6% year-to-date to close its last trading session at $100.07. The stock has gained 14.2% over the past month. MRK’s stock is trading higher than its 50-day and 200-day moving averages of $90.78 and $87.17, respectively, indicating an upward trend.
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.
MRK is rated a B in Value, Sentiment, and Quality. Within the same industry, it is ranked #14. Click here to see additional POWR Ratings for Momentum, Growth, and Stability for MRK.
JNJ shares were trading at $173.94 per share on Tuesday afternoon, up $0.96 (+0.55%). Year-to-date, JNJ has gained 3.68%, versus a -19.05% 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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