Amid the bear market, hedge funds have been buying shares of Merck & Co. (MRK) and Pfizer (PFE). This, along with the strong fundamentals and growth prospects of these stocks, makes them good additions to your watchlist. Let’s discuss.
The stock market has endured a challenging year, with the Dow Jones Industrial Average (DJIA) declining 12.2% year-to-date to close the last trading session at 31,899.29. The S&P 500 (SPX) and the Nasdaq Composite (COMP) have fallen 16.8% and 24.3% year-to-date to close the last trading session at 3,961.63 and 11,834.11, respectively.
The correction in the stock market could be attributed to the war between Ukraine and Russia, supply chain disruption, multi-decade high inflation, and the Fed’s aggressive interest rate hikes. After hiking the benchmark interest rates thrice this year, the Fed is expected to hike the interest rate by 75 basis points this week. This is expected to enhance the chances of a recession.
Hedge fund managers are known to capitalize on such market slowdowns to rake in substantial profits in the long run. They buy fundamentally strong stocks trading at attractive valuations because of the market’s downtrend. Thus, tracking hedge funds can help investors identify key investment opportunities.
Merck & Co., Inc. (MRK)
MRK is a global health care 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. Hedge funds have been adding MRK to their portfolios lately.
On June 29, 2022, MRK announced that it had launched Merck Digital Sciences Studio (MDSS) to enable the generation of innovative technologies for drug discovery and development. Fiona Marshall, the Senior VP, Discovery, Preclinical, and Translational Medicine at Merck Research Laboratories, said, “The MDSS will provide a collaborative and entrepreneurial setting where scientists have access to the tools and expertise to fuel important innovations that advance drug discovery and development.”
MRK’s net sales increased 49.6% year-over-year to $15.90 billion for the first quarter ended March 31, 2022. The company’s non-GAAP net income from continuing operations increased 84.2% year-over-year to $5.42 billion. Also, its non-GAAP EPS came in at $2.14, representing an increase of 84.4% year-over-year.
Analysts expect MRK’s EPS and revenue for the quarter ended June 30, 2022, to increase 29% and 21.7% year-over-year to $1.69 and $13.87 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 17.7% to close the last trading session at $90.11.
MRK’s POWR Ratings reflect solid prospects. 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.
It has an A grade for Growth and a B grade for Value, Stability, Sentiment, and Quality. It is ranked first out of 167 stocks in the Medical – Pharmaceuticals industry. Click here to see MRK’s rating for Momentum.
Pfizer Inc. (PFE)
PFE is a research-based biopharmaceutical company. It is engaged in discovering, developing, manufacturing, marketing, selling, and distributing biopharmaceutical products. The company develops wellness, prevention, treatments, and cures across geographies. Several hedge funds recently added PFE to their portfolios.
On June 9, 2022, PFE announced that it had completed the acquisition of ReViral, which is focused on discovering, developing, and commercializing novel antiviral therapeutics that target respiratory syncytial virus (RSV). Mikael Dolsten, M.D., Ph.D., Chief Scientific Officer, and President, Worldwide Research, Development, and Medical of PFE, said, “This acquisition further demonstrates our commitment to advancing pioneering science – both through our in-house expertise and our work with leading, innovative companies – with the goal of delivering new breakthroughs to patients suffering from serious infectious diseases.”
For the fiscal first quarter ended March 31, 2022, PFE’s revenues increased 76.7% year-over-year to $25.66 billion. The company’s adjusted income increased 74.5% year-over-year to $9.33 billion. Also, its adjusted EPS came in at $1.62, representing an increase of 70.5% year-over-year.
Analysts expect PFE’s EPS and revenue for the quarter ended June 30, 2022, 68.2% and 36.9% year-over-year to $1.80 and $25.98 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 23.5% to close the last trading session at $51.23.
PFE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. Within the same industry, it is ranked #4. To see the other ratings of PFE for Momentum, Stability, and Sentiment, click here.
MRK shares rose $0.27 (+0.30%) in premarket trading Monday. Year-to-date, MRK has gained 19.59%, versus a -16.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.