Decoding Pharma Stocks: Analyzing the Buy Potential of MDGL, MRK, and LLY

Despite the pharmaceutical industry’s reputation for resilience amid economic turbulence, investments in pharmaceutical companies have dipped below historical levels over the past two years.

However, rising U.S. Food and Drug Administration (FDA) approvals, the increasing number of chronic diseases, and robust demand for the latest innovative weight-loss drugs have heightened the industry’s allure among investors. In 2023, the FDA approved almost 50% more novel drugs compared to 2022, restoring approval rates to historical levels.  

Meanwhile, approvals for innovative therapies featuring an active ingredient or molecule not previously sanctioned increased to 55 in 2023, a rise from 37 in 2022 and 51 in 2021. Analysts and investors believe these improvements could potentially trigger increased investments in firms operating in the industry.

Furthermore, the huge demand for the industry’s latest groundbreaking weight loss drug could prove to be highly profitable for the industry in the forthcoming years. Goldman Sachs analysts project that the number of U.S. adults utilizing obesity medications will reach a staggering 15 million by the year 2030.

Given such robust demand, drug-manufacturing companies are racing to enter the lucrative market of widely sought-after weight loss drugs that could accrue a value of tens of billions within a decade.

Buoyed the bright industry prospects, during the fourth quarter of 2023, family offices representing billionaire Waltons and George Soros made their mark in the biotechnology sector, enticed by the growing appeal of drug developers among affluent investors.

Soros Fund Management capitalized on this trend by acquiring a new stake worth $19.20 million in Eli Lilly and Company (LLY) and also made a significant investment of $24.50 million in Merck & Co., Inc. (MRK). Meanwhile, the Walton Investment Team secured a $8.20 million position in Madrigal Pharmaceuticals, Inc. (MDGL).

Therefore, let’s analyze why LLY, MRK, and MDGL could be potential buys.

Eli Lilly and Company (LLY)

Boasting a market cap of over $700 billion, pharma giant LLY has captured the spotlight, drawing attention from both retail and institutional investors alike. This fervor stems from the resounding success of its revolutionary weight-loss drugs, Mounjaro and Zepbound.  

Within a year of initiating treatment for obesity, 42.3% of individuals receiving tirzepatide, the key component in Mounjaro and Zepbound, experienced a weight loss of at least 15%. Responding to the high demand for these weight-loss medications, LLY launched its direct-to-consumer (DTC) platform named "LillyDirect" last month.

Through this website, individuals can directly order from the pharmaceutical company, including its weight-loss medication Zepbound, and access connections with telehealth companies for conditions like obesity.

Moreover, the company’s fourth-quarter performance revealed solid growth in both topline and bottom-line figures. Its total revenue reached $9.35 billion, reflecting a 28.1% year-over-year surge.

Notably, revenue from Mounjaro, LLY’s top-selling product, witnessed a staggering 689.9% year-over-year rise, underscoring the solid demand for the drug. Meanwhile, Zepbound, which was launched in November 2023, registered a revenue of $175.80 million.

In light of the overwhelming demand for its weight-loss pipeline, LLY's market capitalization surged, surpassing that of Tesla, Inc. (TSLA), thereby solidifying its position among the top 10 most valuable companies in the S&P 500 Index.

The stock’s relentless success has sparked speculation among analysts about the possibility of it becoming the first biopharmaceutical company to reach a market value of $1 trillion.

Such considerable advances, along with the LLY’s addition to Soro Fund’s equity portfolio, signify a robust endorsement of confidence in the company.

Merck & Co., Inc. (MRK)

With a strong market cap of over $323 billion and a roughly 24% surge in its shares over the past three months, a global healthcare company, MRK offers a diverse range of human health pharmaceutical products spanning oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular, and diabetes.

In its most recent earnings, the company's top-selling cancer drug Keytruda generated a remarkable revenue of $6.61 billion, up 21% year-over-year, while its HPV vaccine Gardasil brought in an impressive $1.87 billion in revenue, reflecting a 27% year-over-year rise.

MRK’s Chairman and Chief Executive Officer, Robert M. Davis, expressed immense satisfaction with the company's performance throughout last year. He highlighted MRK's significant reach, with its medicines impacting over 500 million people. Additionally, the company invested approximately $30 billion in research and development last year to drive forward the discovery and development of impactful innovations in collaboration with others.

With oncology as its primary focus, MRK recently announced its decision to acquire Harpoon Therapeutics, Inc. for an approximate total equity value of $680 million. This strategic move is anticipated to complement MRK’s existing portfolio and drive forward innovative scientific breakthroughs to serve individuals better worldwide battling cancer.

On top of it, the company is actively exploring avenues to diversify its product portfolio and could possibly venture into the burgeoning market of weight-loss drugs.

Its experimental GLP-1 drugs, initially developed to treat non-alcoholic fatty liver disease, have shown unforeseen indications of weight loss. Alongside targeting weight loss, the pharmaceutical company is also pursuing therapies that provide benefits for diabetes and other disorders.

Soros Fund's investment in MRK could bolster the pharma company’s growth strategies and R&D initiative. The investment signals its confidence in MRK’s performance and prospects. Furthermore, MRK's exceptional track record of dividend payouts may infuse more investor confidence in its stock performance.

Madrigal Pharmaceuticals, Inc. (MDGL)

MDGL is a pre-revenue clinical-stage pharmaceutical company developing novel drugs to address major unmet needs in cardiovascular, metabolic, and liver diseases. Over the past six months, the stock has jumped over 27%.

The company’s lead compound, resmetirom, is being advanced for non-alcoholic steatohepatitis (NASH), a liver disease that commonly affects people with metabolic diseases such as obesity and diabetes, and non-alcoholic fatty liver disease (NAFLD).


MDGL’s positive findings from the Phase 3 MAESTRO-NASH trial last year November demonstrate the potential effectiveness of resmetirom in treating NASH with liver fibrosis, addressing a critical unmet medical need. It is also close to being commercialized. These promising results could not only validate the company's research and development efforts but also have the potential to bolster investor confidence.

MDGL’s latest quarterly report revealed losses of $98.74 million and $5.44 per share, while its research and development expenses rose 3.9% year-over-year. Nevertheless, analysts foresee the company experiencing a final loss in fiscal year 2024 before rebounding with positive profits of $57 million in fiscal year 2025.

Also, as of September 30, 2023, its cash and cash equivalents stood at $62.06 million. However, total operational costs outpaced this liquidity by reaching $263.32 million, of which a significant $201.71 million was research and development expenses.

The company's financial capabilities may hinder certain research initiatives along with corresponding clinical expenses and curtail investment in commercial readiness. This could necessitate fundraising efforts to propel R&D or even propel commercialization strategies for its pharmaceutical product lines.

So, Walton Investment's stake in MDGL serves as a strong endorsement of the pharma giant's potential and growing portfolio. This move undoubtedly bolsters the standing of MDGL’s stocks in the market.

Bottom Line

Overall, the pharmaceutical industry remains dynamic, with companies deftly maneuvering evolving market trends and seizing opportunities for growth and innovations. Thus, investors could consider keeping an eye on the shares of LLY, MRK, and MDGL for potential gains.

Buy Alert: Merck's AI Revolution and the Role of Generative AI in Drug Research

Advancements in Artificial Intelligence (AI) have yielded remarkable progress in technological and operational efficiencies across various sectors. Yet, AI's noteworthy penetration into the healthcare field is raising propositions of transformation.

Pharmaceutical companies have been capitalizing on AI long before the recent surge in interest – the utilization of intricate AI models to decipher disease mechanisms serving as a prime example. AI-facilitated applications like AlphaFold2, ESMFold, and MoLeR offer novel insights into protein structures that unravel numerous diseases.

While the most advanced AI-centric medicine entities have Phase 2 clinical trial drugs, the unlocking of AI-healthcare collaboration power, especially in fashioning potential cures for lethal diseases, will witness compelling progression in the upcoming years.

Researchers today regard AI as a pioneering tool offering an expedited analysis of vast data quantities, surpassing human capabilities. Presently, drug development demands a decade or more in research and development, compounded by the escalating production costs over the past decade – a conundrum existing despite technological advancement.

With AI's intervention, the feasibility of expediting this process, slashing developmental timeframes and drug production costs by up to 30%, emerges. There is also a reduction in failure risk, given the current approximately 90% attrition rate, depending on the therapeutic domain.

GenAI (a subset of deep learning) embarks on a fresh leap in AI evolution and imbues computers with transformative abilities. Its arrival challenges us to envision its implications within the healthcare sphere, particularly drug discovery.

While most ongoing projects are in their infancy stages, the merger of GenAI and drug discovery might instigate not only novel treatments but also breakthroughs potentially outpacing nature. GenAI is revolutionizing several facets of the pharmaceutical realm, from speeding up drug discovery, enhancing procedural efficiency in clinical trials, accelerating regulatory approvals, and ultra-targeting marketing to facilitating in-house medical materials production. GenAI's potential to unlock billions in industry value is imminent.

By expediting drug compound identification processes and their corresponding development, approval, and efficient marketing, this technology could generate an economic value between $60 to $110 billion annually for the pharma and medical-product industries.

The looming GenAI-steered transformation in life sciences lends immeasurable advancements to human health and quality of life. An accelerated drug discovery process, for instance, aids in combating diseases swiftly, freeing up resources for underserved areas such as orphan diseases.

GenAI’s capability to derive patterns and insights from extensive patient data will ignite more personalized treatments, hence improving patient outcomes and streamlining patient care by minimizing discrepancies in therapeutic manufacture and delivery.

Lastly, by automating mundane tasks like document creation and record-keeping, GenAI carries significant potential to augment productivity within the medical research field and enables researchers and medical liaisons to devote more time to patient-centered tasks. In turn, this holds promise for improved service to both clinicians and patients.

Pharmaceutical powerhouse Merck & Co., Inc. (MRK) has set sights on exploring GenAI platforms. The company's interest comes on the heels of the Merck Research Labs collaboration announcement with Variational AI, supported by the CQDM Quantum Leap program.

At the core of this innovation is Variational AI, a trailblazer in optimizing drug discovery and development through the efficient employment of GenAI. This potent technology called Enki offers a novel approach to drug discovery. Drawing parallels with AI software like DALL-E and Midjourney, which can translate text prompts into visual images, Enki generates small molecular structures in response to target product profiles (TPPs). The user picks the desirable attributes, selecting the targets they aim to affect alongside those they seek to avoid; then, Enki produces molecules tailored to meet the TPP specifications.

Constructed as a fundamental model for small molecule drug discovery, Enki serves to hasten and mitigate risks attached to the early stages of discovery. The startup believes that a series of prompts about the TPP is all that stands between users and innovative, selective, and lead-like structures ready for synthesis. Utilizing experimental data, Variational trained Enki to generate molecules based on TPPs, thereby handing researchers the tool to canvas a broader scope of chemical space.

Thanks to the Enki Platform, chemists can bypass the complex process of developing their own GenAI models. They can input their TPP and receive an array of innovative, diverse, selective, and synthesizable lead-like structures within days, facilitating a swift transition into lead optimization. With this dynamic start, it is evident that MRK, the leading purveyor of pharmaceuticals, aims to make a significant splash in the new year.

Several other factors present an optimistic outlook for MRK in 2024.

MRK's flagship oncology drug, Keytruda – the highest-grossing prescription medication worldwide – is slated to gain approval for additional uses. In 2023 alone, Keytruda grossed a remarkable $25.01 billion, equating to 45.2% of MRK's fourth-quarter sales. Forecasters project Keytruda to yield over $30 billion in sales by 2026.

MRK has already seen the tangible effects of its 2023 transactions, substantially boosting the company's future revenue projections. The pharma giant now anticipates garnering $20 billion from fresh oncology products in development by the mid-2030s, almost doubling its earlier pipeline forecast of just over $10 billion.

However, as Keytruda approaches its patent expiration in 2028, MRK is already searching for strategic acquisitions within $15 billion, preparing to weather the ensuing patent erosion. This effort is to ensure continuous growth through novel lucrative ventures, replacing the revenue stream provided by Keytruda upon losing its exclusiveness.

MRK's proactive approach comes on the heels of its recent $680 million acquisition of Harpoon Therapeutics, following the larger purchases of Prometheus Bio ($10.8 billion) and Acceleron Pharma ($11.5 billion).

MRK, buoyed by solid fourth-quarter performances backed by strong Keytruda sales, has secured several deals over the past year. Notably, this includes a notable $5.5 billion agreement with Japan's Daiichi Sankyo, granting co-development rights for three antibody-drug conjugate cancer treatments. This partnership has contributed to MRK's non-GAAP R&D expenses, increasing them to $9.63 billion in the fourth quarter of 2023 and $30.53 billion for fiscal 2023.

Aside from its dominant presence in the oncology sphere, MRK is also targeting the weight loss medication market. The company is developing Efinopegdutide, a GLP-1 class drug for weight management that has demonstrated promising trial results.

After securing only 1% year-over-year sales growth in fiscal year 2023, analysts project a 5.3% year-over-year increase in the fiscal year ending December 2024. This predicted growth is expected to propel the company’s EPS to $8.49, a 462.1% year-on-year increase.

MRK estimates its global sales between $62.70 billion and $64, while non-GAAP EPS is expected to be between $8.44 and $8.59.

Furthermore, MRK boasts an impeccable dividend history, with the annual dividend currently at $3.08 per share, yielding 2.55%. In an impressive display of consistency, MRK has increased its dividend for 13 consecutive years and holds a four-year average yield of 2.97%. Also, over the past three and five years, its dividend grew at a CAGR of 7.8% and 9.3%, respectively.

MRK’s shares have gained over 15% year-to-date to close the last trading session at $126.38. Moreover, it trades above the 50-, 100-, and 200-day moving averages of $110.53, $107.39, and $109.24, respectively. If this upward trajectory persists, the company is poised for a notable performance in 2024.

Bottom Line

With the employment of GenAI, the pharma industry has made a considerable stride forward, leading to significant operational enhancements and quicker benefit realization, especially in drug discovery. The GenAI in drug discovery market is projected to surpass around $1.13 billion by 2032, growing at a CAGR of 27.1%.

MRK has swiftly evaluated and addressed the potential impact of GenAI, demonstrating commendable adaptability in deploying the most appropriate tool for each specific use case. This technology holds great promise for MRK's research, trials, manufacturing, and commercialization endeavors.

Partnerships formed between MRK, AI technology firms, and research institutions could catalyze innovation in GenAI for drug discovery and bolster the company's product pipeline in the future. MRK, with an abundant oncology pipeline, is utilizing advanced technology for drug research. Furthermore, MRK shares are compelling due to robust shareholder returns, growth prospects, solid profitability, and an optimistic outlook.

However, the stock is priced at a premium compared to its competitors. In addition, despite displaying consistency in its dividend payment, its yield of 2.55% sits not only below the U.S. consumer inflation rate but also under that of its healthcare counterparts, potentially rendering MRK a less appealing proposition for conservative investors.

Further complicating matters, government regulations and the Inflation Reduction Act might unfavorably affect MRK's operations. Modifications such as negotiations with Medicare, implementation of medication discounts covered under Medicare Part B and D, and enforced penalties for escalating drug prices pose potential financial risks. MRK's Januvia ended up on this list, jeopardizing the financial stability of MRK's diabetes franchise.

Sales for the Januvia/Janumet (diabetes) franchise declined 13% year-on-year to $787 million in the fiscal fourth quarter of 2023. The drug's sales suffered due to dwindling demand in the U.S. and generic competition in certain international markets. Such regulatory restraints could decelerate MRK’s future revenue growth, pressuring management to reassess its R&D approach.

Therefore, investors are advised to weigh both the positive and negative factors prudently before investing in this stock.

5 Stocks to Buy Now in Response to Rising Unemployment Rate

The recently released August jobs report signaled a cooling down of the robust U.S. job market. With the strong job growth since last year acting as an Achilles heel for the Fed, the benchmark interest rate was raised several times to control inflation.

Although nonfarm payrolls beat estimates of 170,000 to arrive at 187,000 in August, the unemployment rate was 3.8%, rising sequentially to the highest since February 2022. Moreover, the real unemployment rate peaked at 7.1%, increasing by 0.4% and marking the highest since May 2022. Furthermore, the nonfarm payrolls for June and July were revised considerably downward.

The healthcare sector showed the most significant job gain, adding 71,000 jobs. The latest Job Opening and Labor Turnover Survey (JOLTS) report released last week showed that job openings fell to their lowest since March 2021, indicating softness in the labor market. The JOLTS report showed that there were 8.82 million jobs open at the end of July, a decline from the 9.16 million job openings in June.

Wells Fargo Economics senior economist Sarah House said, “Job openings per unemployed person remain above pre-pandemic levels, but this indicator is clearly on a downward trajectory amid cooling labor demand growth and impressive labor supply growth. A normalizing quit rate suggests that the fight over workers is subsiding, at least at the aggregate level.”

The Bureau of Economic Analysis (BEA) revealed that the real gross domestic product (GDP) rose at an annual rate of 2.1% in the second quarter. The latest estimate was lower than the initial advance estimate of a 2.4% growth.

Wells Fargo economist Shannon Seery said, “Overall, there were not any major revisions to the underlying GDP components compared to the first estimate of output, and today’s data do not materially change our overall view of the economy. Incoming data for Q3 show an economy that has continued to expand but with signs of some moderation. We continue to expect the economy to gradually slow during the second half of the year.”

Amid the rise in unemployment and an expected economic slowdown during the second half of the year, investors could consider investing in the healthcare sector as it is relatively stable compared to other sectors. The sector's inelastic demand enables companies in this space to maintain their profit margins irrespective of economic cycles.

Considering these factors, fundamentally strong healthcare stocks Eli Lilly and Company (LLY), Johnson & Johnson (JNJ), Merck & Co., Inc. (MRK), Pfizer Inc. (PFE), and Amgen Inc. (AMGN) could be solid portfolio additions now.

Let’s discuss the fundamentals of these stocks.

Eli Lilly and Company (LLY)

LLY discovers, develops, and markets human pharmaceuticals worldwide. It offers Basaglar, Humalog, Humalog Mix 75/25, Humalog U-200, Humalog Mix 50/50, insulin Iispro, insulin Iispro protamine, insulin Iispro mix 75/25, Humulin, Humulin 70/30, Humulin N, Humulin R, and Humulin U-500 for diabetes; and Jardiance, Trajenta, and Trulicity for type 2 diabetes.

On August 14, 2023, LLY announced the acquisition of Versanis Bio. The acquisition will expand LLY’s portfolio to include Versanis’ lead asset, bimagrumab, which is undergoing a Phase 2b study alone and in combination with semaglutide in adults living with overweight or obesity.

Ruth Gimeno, Ph.D., group vice president diabetes, obesity, and cardiometabolic research at LLY, said, “Combining our current incretin portfolio, including tirzepatide, with activin receptor blockers such as bimagrumab, could be the next major step in innovative treatments for those living with cardiometabolic diseases, like obesity.”

“The wealth of knowledge that our new colleagues from Versanis will bring to Lilly will propel our research and development efforts forward, ultimately benefiting patients around the world,” she added.

In terms of the trailing-12-month EBITDA margin, LLY’s 33.08% is 532.9% higher than the 5.23% industry average. Likewise, its 17.13% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.22%. Furthermore, its 8.55% trailing-12-month Capex/Sales is 89.4% higher than the 4.52% industry average.

LLY’s revenue for the second quarter ended June 30, 2023, increased 28% year-over-year to $8.31 billion. The company’s non-GAAP gross margin increased 28% year-over-year to $6.63 billion. Its non-GAAP net income rose 68.3% over the prior-year quarter to $1.90 billion. Also, its non-GAAP EPS came in at $2.11, representing an increase of 68.8% year-over-year.

Analysts expect LLY’s EPS and revenue to increase 47% and 27.1% year-over-year to $2.91 and $8.82 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 80.2%.

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates under three segments: Consumer Health, Pharmaceutical, and MedTech.

On August 10, 2023, JNJ’s The Janssen Pharmaceutical Companies announced that the U.S. FDA had granted accelerated approval of TALVEY (talquetamab-tgvs), a first-in-class bispecific antibody for the treatment of adult patients with relapsed or refractory multiple myeloma who have received at least four prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 antibody.

In terms of trailing-12-month gross profit margin, JNJ’s 67.50% is 21.7% higher than the 55.44% industry average. Likewise, its 0.53x trailing-12-month asset turnover ratio is 41.1% higher than the industry average of 0.38x. Furthermore, the stock’s 21.99% trailing-12-month levered FCF margin is significantly higher than the 0.22% industry average.

For the second quarter ended June 30, 2023, JNJ’s reported sales rose 6.3% year-over-year to $25.53 billion. Its gross profit rose 7.6% year-over-year to $17.32 billion. The company’s adjusted net earnings increased 6.5% over the prior-year quarter to $7.36 billion. In addition, its adjusted EPS came in at $2.80, representing an increase of 8.1% year-over-year.

Street expects JNJ’s EPS for the quarter ending December 31, 2023, to increase 8.6% year-over-year to $2.55. Its fiscal 2024 revenue is expected to increase 3.8% year-over-year to $87.79 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 5.2%.

Merck & Co., Inc. (MRK)

MRK is a global healthcare company that offers solutions through its prescription medicines, vaccines, biologic therapies, and animal health products. The company operates in the Pharmaceutical and Animal Health segments.

On June 16, 2023, MRK announced the completion of the acquisition of Prometheus Biosciences (RXDX). MRK’s Chairman and CEO Robert M. Davis said, “The Prometheus acquisition accelerates our growing presence in immunology, augments our diverse pipeline, and increases our ability to deliver patient value. This transaction is another example of Merck acting strategically and decisively when science and value align.”

In terms of trailing-12-month gross profit margin, MRK’s 73.22% is 32.1% higher than the 55.44% industry average. Likewise, the stock’s 7.28% trailing-12-month Capex/Sales is 61.3% higher than the 4.52% industry average. Furthermore, its 0.55x trailing-12-month asset turnover ratio is 46.9% higher than the industry average of 0.38x.

MRK’s sales for the second quarter ended June 30, 2023, increased 3% year-over-year to $15.04 billion. Its non-GAAP net loss that excludes certain items came in at $5.22 billion, compared to a non-GAAP net income of $4.74 billion in the year-ago quarter. Also, its non-GAAP loss per share came in at $2.06, compared to a non-GAAP EPS of $1.87 in the prior-year quarter.

For the quarter ending September 30, 2023, MRK’s EPS and revenue are expected to increase 4.7% and 1.8% year-over-year to $1.94 and $15.22 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 26%.

Pfizer Inc. (PFE)

PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic and women's health, biosimilars, sterile injectable and anti-infective medicines, and oral COVID-19 treatment.

On August 21, 2023, PFE announced that the U.S. FDA approved ABRYSVO (Respiratory Syncytial Virus Vaccine), its bivalent RSV prefusion F (RSVpreF) vaccine, for the prevention of LRTD and severe LRTD caused by RSV in infants from birth up to six months of age by active immunization of pregnant individuals at 32 through 36 weeks gestational age.

PFE’s 32.53% trailing-12-month EBIT margin is significantly higher than the 0.15% industry average. Its 69.82% trailing-12-month gross profit margin is 25.9% higher than the industry average of 55.44%. Furthermore, the stock’s 15.85% trailing-12-month levered FCF margin is considerably higher than the industry average of 0.22%.  

PFE’s revenues for the second quarter ended June 30, 2023, declined 54% year-over-year to $12.73 billion. The company’s adjusted income decreased 67.1% year-over-year to $3.84 billion. Its adjusted EPS came in at $0.67, representing a decline of 67.2% over the prior-year quarter.  

PFE’s EPS and revenue for fiscal 2024 are expected to increase 3.9% and 0.1% year-over-year to $3.43 and $66.54 billion, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 0.5%.  

Amgen Inc. (AMGN)

AMGN discovers, develops, manufactures, and delivers human therapeutics worldwide. It focuses on inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology, and neuroscience.  

On September 1, 2023, AMGN and Horizon Therapeutics Public Limited Company (HZNP) announced the entry into a consent order agreement with the Federal Trade Commission (FTC), helping resolve the pending FTC administrative lawsuit. This effectively clears AMGN’s path to close the acquisition of HZNP.

With the consent order agreement, AMGN and HZNP expect that the parties will jointly file stipulated proposed orders to dismiss the preliminary injunction motion and dissolve the temporary restraining order in the U.S. District Court for the North District of Illinois. Both companies will seek the final approvals required under Irish law to close the acquisition.

In terms of the trailing-12-month gross profit margin, AMGN’s 74.29% is 34% higher than the 55.44% industry average. Likewise, its 37.82% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.22%. Furthermore, its 51.78% trailing-12-month EBITDA margin is 890.5% higher than the 5.23% industry average.

For the fiscal second quarter ended June 30, 2023, AMGN’s total revenues increased 5.9% year-over-year to $6.99 billion. Its non-GAAP operating income rose 5.4% over the prior-year quarter to $3.52 billion. The company’s non-GAAP net income increased 7.5% year-over-year to $2.68 billion. Also, its non-GAAP EPS came in at $5, representing an increase of 7.5% year-over-year.

Street expects AMGN’s revenue for the quarter ending September 30, 2023, to increase 4% year-over-year to $6.92 billion. Its EPS for the quarter ending December 31, 2023, is expected to increase 15% year-over-year to $4.70. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 19.8%.

Build a Secure Portfolio with these 5 Stocks Amid 15-Year High Treasury Yield

Last month, Federal Reserve Chair Jerome Powell announced the unanimous decision by the FOMC to raise key interest rates by another 25 bps. With this move, the central bank has raised the benchmark borrowing cost to 5.25%-5.50.

With a 2.6% rise in inflation, down from a 4.1% rise in Q1 and well below the estimate for a gain of 3.2%, and an annualized increase of 2.4% in the gross domestic product in the second quarter, topping the 2% estimate, the belief that Jerome Powell and his team at the Federal Reserve may be on the cusp of achieving the elusive “soft landing” was gaining strength in the market.

However, ECB raised interest rates by a quarter percentage point shortly after, citing persistent inflation. Moreover, the recently released minutes of the Fed’s July 25-26 policy meeting reveal broad expectations of ‘upside risks’ to inflation, leading to a fresh realization that rates could stay higher for longer, contrary to some initial forecasts and hopes of cuts starting in 2024.

In such a scenario, despite increased optimism, businesses are expected to remain weighed down by high borrowing costs, and economic activity is expected to remain stifled due to relatively scarce credit.

Moreover, with every increase in benchmark interest rates, a selloff of long-duration fixed-income instruments, such as the 10-year treasury notes, gets triggered, which causes a slump in their market value and a consequent increase in their yields. This also increases the benchmark 30-year mortgage rates, thereby depressing demand and deepening the crisis in which real estate has lately been finding itself.

Last week, as the 10-year Treasury yield rose to 4.307% from 4.258%, settling at its highest closing level since 2007, and the 30-year Treasury yield hit a 12-year high, rising to 4.411%, there is still a significant probability that in order to overcompensate for the infamous “transitory” call that caused the Fed to arrive (really) late in its fight against demand-driven inflation, the central bank may be sowing the seeds of economic stagflation.

An increase in borrowing costs would not just raise the cost of servicing the $32.7 trillion national debt; significant markdowns and prices of legacy bonds could crush the loan portfolios of banks that could share the same fate as the Silicon Valley Bank and the First Republic Bank. In this context, S&P's move to downgrade multiple U.S. banks citing ‘tough’ operating conditions hardly comes as a surprise.

Speaking of banks, the Bank of Japan’s policy tweak loosened its yield curve control, sparking widespread shock in the markets. To compound the miseries further, after placing the country on negative watch amid the debt-ceiling standoff at Capitol Hill back in May, Fitch Ratings recently downgraded U.S. long-term rating to AA+ from AAA, citing the erosion of confidence in fiscal management.

With HSBC Asset Management’s warning that a U.S. recession is coming this year, with Europe to follow in 2024, gaining credibility with each passing day, being diligent investors confident enough to increase their stakes in fundamentally strong businesses could be a time-tested method to navigate potential turbulence ahead.

Here are a few stocks which could be worthy of consideration:

Johnson & Johnson (JNJ)

JNJ has been around for 135 years and is a worldwide researcher, developer, manufacturer, and seller of various healthcare products. The company operates through three segments: Consumer Health; Pharmaceuticals; and MedTech.

Over the past three years, which have been turbulent, to say the least, JNJ’s revenue has grown at a 6.7% CAGR. During the same period, the company also registered EBITDA and total asset growth of 8.2% and 6.6%, respectively.

Despite flagging sales of Covid 19 Vaccines, JNJ’s reported sales during the fiscal year 2023 second quarter increased by 6.3% year-over-year to $25.53 billion. During the same period, the company’s adjusted net earnings increased by 6.5% and 8.1% year-over-year to $7.36 billion and $2.80 per share, respectively.

In addition to its robust financials, the relative immunity of its demand and margins to potential economic downturns make it an attractive investment option for solid risk-adjusted returns.

Merck & Company, Inc. (MRK)

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.

Over the past three years, MRK’s revenue has grown at a 9.9% CAGR, while its total assets have grown at a 4.9% CAGR.

On August 3, MRK announced that the U.S. Food and Drug Administration (FDA) approved an expanded indication for ERVEBO, which is now indicated for the prevention of disease caused by Zaire ebolavirus in individuals 12 months of age and older. The vaccine was previously approved for use in individuals of age 18 years and older.

On July 25, MRK announced a quarterly dividend of $0.73 per share of the company’s common stock for the fourth quarter of 2023. Payment will be made on October 6, 2023, to shareholders of record at the close of business on September 15, 2023.

MRK pays $2.92 annually as dividends. Its 4-year average dividend yield of 2.96% exceeds the industry average of 1.32%. The company has increased its dividend payouts over the past 12 years and at a 9.6% CAGR over the past five years.

During the second quarter of the fiscal year 2023, MRK’s revenue increased by 3% year-over-year to $15.04 billion. Excluding the $10.2 billion, or $4.02 per share, charge for the acquisition of Prometheus Biosciences, Inc. (Prometheus), the company’s non-GAAP net income increased by 5% and 4.8% year-over-year to $4.98 billion and $1.96 per share, respectively.

Analysts expect MRK’s revenue and EPS for the fiscal third quarter to increase by 1.7% and 4.9% year-over-year to $15.22 billion and $1.94, respectively. The company has further impressed by surpassing consensus EPS estimates in each of the trailing four quarters.

The Coca-Cola Company (KO)

As a world-renowned beverage company, KO manufactures, markets, and sells various non-alcoholic beverages. The company operates through six segments: Europe, the Middle East, and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments.

Over the last three years, which included a pandemic of all things, KO’s revenues have grown at an 8.7% CAGR, while its EBITDA has grown at 7.1% CAGR. The company’s net income has grown at a 4.6% CAGR during the same period.

On July 12, KO and its eight bottling partners from around the world announced the creation of a new $137.7 million venture capital fund focusing on sustainability investments. The fund would focus on key investments in packaging, decarbonization, and other initiatives with the potential to reduce KO’s system-wide carbon footprint.

During the fiscal 2023 second quarter, KO’s net revenue grew 6% year-over-year to $12 billion, while its organic (non-GAAP) revenue grew 11% year-over-year. During the same period, the company’s comparable (non-GAAP) EPS also grew 11% year-over-year to $0.78.

In concurrence with the company’s raised guidance, analysts expect KO’s revenue and EPS for the fiscal year 2023 to increase by 4.6% and 6.4% year-over-year to $45.02 billion and $2.64, respectively. Both metrics are expected to keep growing over the next two fiscals to come in at $49.92 and $3.03, respectively.

PepsiCo, Inc. (PEP)

PEP is a global manufacturer, marketer, distributor, and seller of beverages and convenience foods. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia, New Zealand, and China Region.

Over the last three years, PEP’s revenues have grown at a 10% CAGR, while its EBITDA has grown at 7.7% CAGR. The company’s net income has grown at 4.9% CAGR during the same period.

On July 20, PEP announced its quarterly dividend of $1.265 per share, which translates to an annual dividend of $5.06. This signifies a 10 percent increase year-over-year. This dividend is payable on September 29, 2023, to shareholders of record at the close of business on September 1, 2023.

This marks PEP’s 51st consecutive annual dividend increase at a rate of 7.1% CAGR over the past five years.

During the fiscal 2023 second quarter, PEP’s organic (non-GAAP) revenue increased by 13% year-over-year, while its core (non-GAAP) EPS of $2.09 translated to a 15% year-over-year growth.

For fiscal year 2023, PEP now expects to deliver 10% organic revenue growth (previously 8%) and 12% core constant currency EPS growth (previously 9%).

Duke Energy Corporation (DUK)

As an energy company, DUK operates through two segments: Electric Utilities and Infrastructure (EU&I) and Gas Utilities and Infrastructure (GU&I).

Over the past three years, DUK’s revenue increased at a 6% CAGR, while its EBITDA has increased by 4.5% CAGR over the same time horizon.

On July 13, DUK announced its quarterly cash dividend of $1.025 per share of common stock, an increase of $0.02, and $359.375 per share on its Series A preferred stock, equivalent to $0.359375 per depositary share, payable on Sept.18, 2023.

DUK currently pays $4.10 per share of common stock as annual dividends, which have grown for the past 11 years and at 2.4% CAGR over the past five years. Through the consistent return of capital, DUK provides adequate income generation opportunities for investors to help them tide over economic uncertainty.

On August 15 and August 17, DUK filed a resource plan, and an updated Carbon Plan to serve the growing energy needs projected for South and North Carolina, respectively.

On July 6, DUK unveils Kentucky's largest utility-scale rooftop solar site, consisting of over 5,600 photovoltaic panels, at Amazon Air Hub. It will feed up to 2 megawatts of solar power directly onto the electric distribution grid.

For the six months of the fiscal that ended June 30, 2023, DUK’s total operating revenues and operating income increased by 2.1% and 12.4% year-over-year to $13.85 billion and $3.10 billion, respectively. As a result, the company’s net income and adjusted EPS for the period came in at $531 million or $2.10 per share, respectively.