While macroeconomic volatilities are weakening market sentiment of late, the chances of a recession this year continue to worry investors. Therefore, we take a look at some of the no-brainer stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), Novo Nordisk A/S (NVO), and Merck & Co., Inc. (MRK), which could help survive a market downturn.
Yesterday, the Federal Reserve increased interest rates by 0.25% and indicated that rate hikes could be coming to an end. The increase takes the benchmark federal funds rate to a target range between 4.75%-5%.
During the news conference, the central bank leader said that the decision to raise rates was due to intermediate data on inflation and the strength of the labor market, dashing the hopes of a pause in rate hikes in light of the banking crisis. Investors still see rate cuts over the summer, even with Powell signaling that it’s unlikely.
On the other hand, the odds of a recession are rising again. The Goldman Sachs Group, Inc.’s (GS) chief economist, Jan Hatzius, foresees a 35% chance of a recession in the next 12 months, up from the previous 25%. GS also slashed its 2023 Gross Domestic Product (GDP) forecast by 0.3 percentage points to 1.2%.
The increase in recession odds reflects increased near-term uncertainty around the economic effects of small bank stress. Therefore, the stock market will likely remain under pressure.
Given the strong fundamentals of TSM, NVO, and MRK, these stocks look well-positioned to survive the market uncertainties. So, these stocks could be no-brainer picks now.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, tests, and markets integrated circuits and other semiconductor products globally. Its products are used in automotive electronics, high-performance computing, and mobile device markets.
On February 14, TSM’s board of directors authorized a $3.50 billion capital injection plan for TSM Arizona. The company tripled its initial $20 billion commitment to the Arizona chip facility in December, bringing it to $40 billion. This marks one of the biggest foreign investments in American history. The company could benefit considerably by expanding its business operations.
Last year in December, the company announced that its 3nm technology had achieved volume production with good yields, which was duly celebrated with the topping ceremony of its Fab 18 Phase 8 facility. The company believes 3nm technology could generate end products worth a staggering $1.50 trillion within five years of achieving volume production.
In terms of forward non-GAAP P/E, TSM is trading at 16.35x, 21% lower than the industry average of 20.69x. The stock’s forward EV/EBITDA of 8.17x is 39.7% lower than the 13.54x industry average. Furthermore, the stock’s forward Price/Cash Flow of 8.75x is 51% lower than the 17.87x industry average.
TSM’s net revenue increased 42.8% year-over-year to NT$625.53 billion ($20.46 billion) in the fourth quarter that ended December 31, 2022. Its gross profit grew 68.7% from the prior year’s quarter to NT$389.19 billion ($12.73 billion), while its income from operations came in at NT$325.04 billion ($10.63 billion), up 77.8% year-over-year.
In addition, the company’s net income and EPS increased 78% year-over-year to NT$295.90 billion ($9.68 million) and NT$11.41, respectively.
The consensus revenue estimate of $17.29 billion for the first quarter ending March 31, 2023, reflects a 2.3% year-over-year increase, while its EPS is expected to be $1.22 in the same quarter. Moreover, TSM surpassed its consensus EPS estimates in all four trailing quarters.
Shares of TSM have gained 23% over the past three months and 24.3% year-to-date to close the last trading session at $92.62.
TSM’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has an A grade for Quality and a B for Sentiment and Momentum. In the B-rated 91-stock Semiconductor & Wireless Chip industry, it is ranked #22.
Beyond what we stated above, we also have TSM’s ratings for Growth, Value, and Stability. Get all TSM ratings here.
Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the research, development, manufacture, and marketing of pharmaceutical products. It operates through two segments: Diabetes and Obesity care; and Biopharm.
On March 2, the company announced the expansion of its Research and Development (R&D) presence in the greater Boston metro area, creating one of its largest R&D hubs outside of Denmark.
Marcus Schindler, Ph.D., executive vice president for Research & Early Development and chief scientific officer of NVO, said, “We are committing to further expansion and to having a major life sciences presence in the Boston area, to support pipeline expansion into new modalities, with the ultimate goal of delivering new innovative medicines to people living with chronic diseases.”
On February 1, NVO initiated a share repurchase program as a part of the overall share repurchase program of up to Kr 28 billion ($3.97 billion) to be executed during a 12-month period. Under this program, NVO intends to repurchase B shares for an amount up to Kr 5.60 billion ($793.26 million) in the period between 1 February 2023 and 2 May 2023.
The stock’s forward non-GAAP PEG multiple of 1.36 is 31% lower than the industry average of 1.97.
NVO’s net sales for the fiscal fourth quarter that ended December 31, 2022, increased 25.5% year-over-year to Kr48.09 billion ($6.97 billion), while its operating profit increased 25.3% from the prior-year quarter to Kr17.09 billion ($2.48 billion). The company’s net profit during the period amounted to Kr13.59 billion ($1.97 billion) and Kr6.02 per share, up 24.8% and 26.5% year-over-year, respectively.
Analysts expect NVO’s EPS and revenue for the fiscal quarter ending March 31, 2023, to increase 21.6% and 17.3% year-over-year to $1.07 and $7.04 billion, respectively. It surpassed consensus revenue estimates in three out of the trailing four quarters.
The stock has gained 33.8% over the past year and 49.2% over the past six months to close the last trading session at $146.69.
NVO’s strong fundamentals are reflected in its POWR Ratings. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value, Stability, and Sentiment. NVO is ranked first out of 166 stocks in the Medical – Pharmaceuticals industry. Click here to see the additional ratings for NVO (Growth and Momentum).
Merck & Co., Inc. (MRK)
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 via the same IM route.
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 2.77% 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.
In terms of forward non-GAAP P/E, MRK is trading at 15.06x, 21.3% lower than the industry average of 19.14x. Likewise, the stock’s forward EV/EBITDA and EV/EBIT of 11.79x and 13.46x are 10.7% and 17.4% lower than the industry averages of 13.21x and 16.29x, 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.
For the fiscal year ending December 2024, analysts expect MRK’s revenue and EPS to increase 6.4% and 22.6% year-over-year to $61.89 billion and $8.59, respectively. MRK surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.
Over the past year, the stock has gained 31.7% to close the last trading session at $104.40.
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, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #21.
In addition to the POWR Ratings given above, click here to see MRK’s ratings for Growth, Momentum, and Sentiment.
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TSM shares were trading at $95.32 per share on Thursday afternoon, up $2.70 (+2.92%). Year-to-date, TSM has gained 28.49%, versus a 4.48% 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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