- Rising prices, accelerating inflation and a slowing economy hurt the Standard & Poor’s 500 Index.
- Stocks in the energy and healthcare sectors were the main gainers in the market.
- Investors should consider buying ExxonMobil and Merck
With just 25 trading days left in 2022, US stocks are on track for one of their worst annual performances in recent history, weighed down by concerns that the Fed’s aggressive rate hike to fight inflation is not tipping the economy into recession.
It is down 15.8% year-to-date, and is about 17% below its closing high on Jan. 3. The technology index, which has been in bear market territory for most of the year, is down 28.6% year-to-date, and 31% below its all-time high on November 19, 2021.
Meanwhile, the premium segment is the least declining, down 6.1% from a year earlier, and about 7.7% from its all-time high at the start of the year.
Despite months-long declines, energy company Exxon Mobil (NYSE:) and healthcare giant Merck (NYSE:NYSE) have provided some relief for investors, as they shone in a tough market at the expense of past high-growth tech winners.
There is no doubt that investors who have followed the strong rally are most grateful at this time of year. For those who missed it, I would recommend buying XOM and MRK, given the profitable business model, healthy balance sheet, and huge cash flow.
Exxon Mobil
- Performance since the beginning of the year: +86.6%
- Market capitalization: 471.1 billion dollars
2022 was a landmark year for Exxon Mobil. Shares of the Irving, Texas, company, which began trading at $61.19 on Jan. 1 and hit a record high of $114.66 on Nov. 8, are up 86.6 percent since the start of the year, thanks to a rapid rise in oil prices. And the .
WTI oil is up nearly 15% this year as prices hit their highest level since 2008 sometime amid global supply disruptions in the wake of the Ukrainian invasion of Ukraine and Russia in February. Meanwhile, U.S. natural gas prices, which hit a 14-year high in late August, are up about 85% year-to-date.
At current levels is Exxon, which has significantly outperformed its major competitors – Chevron (NYSE:) (+58.4% YoY), Shell (NYSE:) (+30.9% YoY), TotalEnergies (NYSE:) (+21.4% YoY). ) and BP (NYSE 🙂 (+ 31% compared to last year) – is the eighth publicly traded company in the United States.
In my opinion, XOM remains one of the best stocks to own heading into the new year, thanks to the company’s continued efforts to return capital to shareholders amid a strong balance sheet and high levels of available cash flow. It also has a relatively cheap rating.
The oil and gas giant posted a record quarterly profit of $19.7 billion last month, which is close to the $20.7 billion reported by Apple (NASDAQ:) over the same period. And it made about $43 billion in profits in the first nine months of 2022, up 19% from the previous year.
In fact, Exxon said it returned $8.2 billion to its shareholders during the July-September period, including $3.7 billion in dividends and $4.5 billion in share repurchases. The company has bought back $10.5 billion of its shares since the beginning of the year, in line with its plan to buy back up to $30 billion of shares during the 2023 fiscal year.
I believe Exxon is well positioned to extend its strong performance as it continues to benefit from strong commodity pricing and increased production from its blue-chip operations in the Permian Basin.
With a price-to-earnings (P/E) ratio of 9.0, the stock is undervalued given the company’s growth prospects.
merck
- Performance since the beginning of the year: + 39.5%
- Market capitalization: $270.5 billion
Merck stock has been a bright spot on the S&P as investors flock to this burgeoning healthcare name. The actions of a giant pharmacologic base in Rahway, in New Jersey, which did not atteint a sommet historically of 107.09 dollars, the nuit dernière après avoir commencé l’année of 76.64 dollars, sont in house of 39.5% depuis le beginning of the year.
The drugmaker is the year’s best-performing stock among the names in Select Sector SPDR® (NYSE:) health care fund, outperforming year-to-date industry-leading peers, Johnson & Johnson (NYSE::) (+3.3% annually), Eli Lilly ( NYSE 🙂 (+30.6% yoy), AbbVie (NYSE: +18% yoy), and Pfizer (NYSE:) (-16, 8% yoy), thanks to strong demand for its hit drug.
Merck has six blockbuster drugs, each generating more than $1 billion in revenue, including the cancer immunotherapy Keytruda, the human papillomavirus vaccine Gardasil, and the diabetes treatment Januvia.
Merck is well positioned for more gains in the coming months as it continues to benefit from strong fundamentals, which will help boost future earnings and free cash flow growth, allowing it to continue to focus on return to shareholders.
It beat earnings and revenue forecasts each quarter since the start of the year, and by the end of September, the pharmaceutical giant had more than $11 billion in cash.
Stocks of high-quality defensive companies whose products are essential to people’s daily lives, such as drugmakers, tend to do well during economic downturns as they exhibit high free cash flows, low debt ratios, and realistic valuations.
In fact, with an expected P/E ratio of 14.1 and an annualized return of $2.76 per share, a relatively high yield of 3.20%, Merck stock still has plenty of room to continue its advance. , making it a solid investment with strong long-term growth prospects.
Disclosure: At the time of writing, Jesse is long in the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 via the SPDR Dow ETF,And theSPDR S&P 500 and Invesco QQQ ETF. It is also long on me Select Energy Sector SPDR ETF and Healthcare Fund Select Sector SPDR ETF. The opinions expressed in this article are those of the author only and should not be considered investment advice.