The latest inflation data has further aggravated recession worries. With inflation still hovering near its multi-decade high, the odds of the Fed proceeding with its fourth consecutive 75-bps interest rate hike are pretty high. The consequent increase in recession fears has dampened the market sentiment significantly.
However, healthcare companies enjoy demand and margins resistant to inflation and recession. The inelastic demand for healthcare products helps these companies generate stable revenues regardless of inflationary pressures and consumers’ spending cuts amid a recession.
Moreover, the demand for healthcare products and services could rise further due to the increased need to serve aging Baby Boomers and the increasing frequency and severity of chronic conditions.
According to a report published by Health Affairs, national health spending is expected to reach $6.8 trillion by 2030.
Hence, given ongoing macroeconomic turbulence and uncertain outlook, one could make the most of the strong uptrend in healthcare stocks Eli Lilly and Company (LLY), Merck & Co., Inc. (MRK), and Biogen Inc. (BIIB) by investing in them.
Eli Lilly and Company (LLY)
LLY discovers, develops, and markets human pharmaceuticals worldwide. With a market capitalization of $314.88 billion, the company provides diabetes, oncology, neuroscience, and other products.
Over the last three years, LLY has grown its revenue at a 10.3% CAGR, while the company’s EBITDA has grown at a 13.3% CAGR.
For the second quarter of the fiscal year 2022 ended June 30, 2022, LLY’s worldwide revenue stood at $6.49 billion. Excluding revenue from Alimta, the sale of the company's rights to Cialis in China in Q2 2021, and COVID-19 antibodies, the company’s revenue grew 6% year-over-year. LLY’s operating income and net income came in at $1.21 billion and $952.50 million, respectively. Its non-GAAP EPS came in at $1.25.
The consensus revenue estimate of $30.30 billion for fiscal 2023, ending September 2023, represents a 5.2% improvement year-over-year. Also, Street expects LLY’s EPS to grow 16.3% year-over-year to $9.28 during the same period.
LLY’s stock is trading at a premium, indicating high expectations regarding the company’s performance in the upcoming quarters. Regarding forward P/E, LLY is trading at 41.69x, 122.7% higher than the industry average of 18.7x. Also, it is trading at a forward Price/Sales multiple of 10.98 compares to the industry average of 4.25.
The stock is currently trading above its 50-Day and 200-Day moving averages of $315.46 and $293.68, respectively, indicating a bullish trend. It has gained 10.7% over the past month to close the last trading session at $332.76.
MarketClub’s Trade Triangles show that LLY has been trending UP for all the three-time horizons. The long-term trend for LLY has been UP since March 17, 2022, while its intermediate-term and short-term trends have been UP since September 28 and October 14, 2022, respectively.
The Trade Triangles are our proprietary indicators, comprised of weighted factors that include (but are not necessarily limited to) price change, percentage change, moving averages, and new highs/lows. The Trade Triangles point in the direction of short-term, intermediate, and long-term trends, looking for periods of alignment and, therefore, intense swings in price.
In terms of the Chart Analysis Score, another MarketClub proprietary tool, LLY scored +100 on a scale from -100 (strong downtrend) to +100 (strong uptrend), indicating that the uptrend is likely to continue. However, traders should protect gains.
The Chart Analysis Score measures trend strength and direction based on five different timing thresholds. This tool considers intraday price action; new daily, weekly, and monthly highs and lows; and moving averages.
Click here to see the latest Score and Signals for LLY.
Merck & Co., Inc. (MRK)
With a market capitalization of $233.52 billion, MRK is a global healthcare company offering prescription medicines, vaccines, biological therapies, and animal health products. The company operates through Pharmaceuticals and Animal Health segments.
MRK’s revenue, EBITDA, and EPS increased at CAGRs of 8.8%, 10.1%, and 22.3% over the last three years, respectively.
In the fiscal 2022 second quarter ended June 30, 2022, MRK’s sales increased 28% year-over-year to $14.59 billion. The company’s non-GAAP net income grew 204.2% from the year-ago quarter to $4.74 billion. During the same period, its non-GAAP EPS amounted to $1.87, up 206.6% year-over-year.
Analysts expect MRK’s revenue for the current fiscal year (ending December 31, 2022) to come in at $58.54 billion, indicating an increase of 20.2% year-over-year. The company’s EPS is expected to increase 22.3% year-over-year to $7.36. Furthermore, MRK has topped the consensus EPS estimates in each of the trailing four quarters.
The stock is currently trading at a discount to its peers. In terms of forward P/E, MRK is presently trading at 12.53x, 31.3% lower than the industry average of 18.19x. Also, its forward Price/Sales multiple of 3.99 compares with the industry average of 4.22.
MRK is currently trading above its 50-Day and 200-Day moving averages of $88.48 and $85.82, respectively, indicating a bullish trend. It has gained 9.3% over the past month to close the last trading session at $94.12.
According to the Trade Triangles, MRK has been trending UP for all three time periods. The long-term trend for MRK has been UP since October 1, 2021, while its intermediate-term and short-term trends have been UP since October 10 and October 14, 2022, respectively.
In terms of the Chart Analysis Score, MRK scored +90, indicating that the stock is in a strong uptrend that is likely to continue. While MRK shows intraday weakness, it remains in the confines of a bullish trend. Traders should use caution and utilize a stop order.
Click here to see the latest Score and Signals for MRK.
Biogen Inc. (BIIB)
BIIB develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases. With a market capitalization of $38.40 billion, BIIB has a leading portfolio of medicines to treat multiple sclerosis, introduced the first approved treatment for spinal muscular atrophy, and developed the first and only approved treatment to address a defining pathology of Alzheimer’s disease.
During the fiscal 2022 second quarter ended June 30, 2022, BIIB’s total revenue came in at $2.59 billion, registering a slight year-over-year decline due in part to generic and biosimilar competition for TECFIDERA and RITUXAN. Total cost and expenses declined 39.8% year-over-year to $1.32 billion.
As a result, BIIB’s net income increased 135.9% from the year-ago value to $1.06 billion, while its EPS grew 142.1% from the prior-year quarter to $7.24.
Analysts expect BIIB’s EPS for the fourth quarter of the current fiscal year (ending December 31, 2022) to increase by 3.2% year-over-year to $3.50. The company has surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock is currently trading at a discount to its peers. In terms of forward P/E, BIIB is currently trading at 16.3x, 12.8% lower than the industry average of 18.72x. Also, its forward Price/Sales multiple of 3.91 compares favorably with the industry average of 4.33.
The stock is trading above its 50-day and 200-day moving averages of $222.59 and $214.35, respectively, indicating a bullish trend. It has gained 30.9% over the past month to close the last trading session at $269.55.
BIIB has been trending UP for all three time periods, according to Trade Triangles. The long-term trend for BIIB has been UP since August 8, 2022, while its intermediate-term and short-term trends have been UP since September 12 and October 13, 2022, respectively.
In terms of the Chart Analysis Score, BIIB scored +90, indicating that it is in a strong uptrend that is likely to continue. While BIIB shows intraday weakness, it remains in the confines of a bullish trend. Traders should use caution and utilize a stop order.
Click here to see the latest Score and Signals for BIIB.
What's Next for these Health Care Stocks?
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