The stock market has witnessed wild swings lately, with slowing inflation and the Fed’s hawkish tone influencing investors. However, many experts believe the stock market will stabilize next year despite the possibility of a recession.

Fundstrat’s Tom Lee said in his 2023 outlook that the U.S. stocks are poised to surge 18% next year as the economy is likely to achieve a “soft landing.” Lee set a 2023 year-end price target of 4,750 for the S&P 500, relying on market history, which shows that it’s incredibly rare for the S&P 500 to print back-to-back negative returns in two years. 

However, with concerns over the possible continuation of aggressive interest rate hikes and looming recession fears expected to keep the markets volatile in the near term, investing in stocks that offer compelling yields can be wise buys for new investors.

Fundamentally strong and dividend-paying stocks Merck & Co., Inc. (MRK) and Verizon Communications Inc. (VZ) could be solid picks on that front.

Merck & Co., Inc. (MRK)

MRK provides health solutions via its over-the-counter medications, vaccinations, biological therapies, and animal health products. It operates through two segments, Pharmaceutical and Animal Health. Its clients include drug wholesalers, retailers, hospitals, government agencies, veterinarians, and animal producers.

On December 12, MRK announced the commencement of a cash tender offer to purchase all outstanding shares of common stock of Imago BioSciences, Inc. (IMGO). The company had announced earlier that it had entered into a definitive agreement to acquire Imago for $36.00 per share in cash for an approximate total equity value of $1.35 billion.

Following the purchase of shares in the tender offer, Imago will become a subsidiary of MRK and will benefit MRK significantly.

On November 29, MRK’s Board of Directors declared a quarterly dividend of $0.73 per share of the company’s common stock for the first quarter of 2023, payable on January 9, 2023.

It pays a $2.92 per share dividend annually, which translates to a 2.66% yield on the current price. MRK’s four-year average dividend yield is 2.95%. Its dividend payments have grown at a 9.1% CAGR over the past three years, and it has 12 years of consecutive dividend growth history.

For the fiscal 2022 third quarter ended September 2022, MRK’s pharmaceutical sales increased 13% year-over-year to $12.96 billion, while its total sales grew 14% from the year-ago value to $14.96 billion. Non-GAAP net income that excludes certain items increased 4% year-over-year to $4.70 billion, while its non-GAAP EPS that excludes certain items rose 4% from the prior year’s quarter to $1.85.

The consensus EPS estimate of $7.38 for the fiscal year ending December 2022 indicates a 22.7% year-over-year improvement. Likewise, its current year’s consensus revenue estimate of $59.07 billion indicates a 21.3% rise from the previous year. Moreover, MRK has surpassed the consensus EPS and revenue estimates in each of the four trailing quarters, which is impressive.

MRK has gained 43.2% year-to-date to the last trading session at $109.71. It has gained 27.6% over the past three months.

MRK’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a B grade for Value, Sentiment, and Quality. Within the Medical-Pharmaceuticals industry, it is ranked #12 of 160 stocks.

Click here to see additional ratings of MRK for Growth, Stability, and Momentum.

Verizon Communications Inc. (VZ)

VZ offers communication, information, and entertainment products and services to consumers, businesses, and governmental agencies. The company provides wireless and wireline communications services and products in the United States through Consumer Group and Business Group segments.

On December 8, VZ announced the extension of its network virtualization efforts with the addition of the first Ericsson virtualized cell site (also referred to as Ericsson Cloud RAN). The extension offers Verizon efficiency in network deployment and operational management transformation.

On November 30, VZ announced its partnership with Wipro Limited (WIT) to accelerate the network modernization and cloud transformation journey for businesses. This will enable VZ to help WIT transition its customers from legacy cycles of deploying hardware, applications, and services to an automated, self-healing, and highly secure network service environment.

On December 1, VZ declared its quarterly dividend of $0.65 per share, payable to shareholders on February 1, 2023. The company pays $2.61 annually as dividends, which translates to a yield of 7.06% at the current price, better than the 4-year average dividend yield of 4.65%. Its dividend payouts have grown for 18 consecutive years.

During the third quarter of the fiscal year 2022 ended September 30, VZ’s total operating revenues grew 4% year-over-year to $34.2 billion. Its adjusted EBITDA and net income came in at $12.2 billion and $5 billion, respectively. The company’s adjusted EPS came in at $1.32 for the quarter.

VZ’s revenue is expected to increase 3.6% year-over-year to $35.30 billion for the fiscal fourth quarter ending December 2022. Moreover, the company has a remarkable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.

The stock declined marginally intraday to close the last trading session at $36.99.

VZ’s strong fundamentals are reflected in its overall POWR Rating of B, which equates to a Buy in our proprietary rating system.

It also has a grade of B for Growth and Stability. VZ is ranked #3 of 19 stocks in the Telecom – Domestic industry.

Click here to access the additional VZ ratings for Value, Momentum, Sentiment, and Quality.

MRK shares were trading at $110.88 per share on Wednesday morning, up $1.17 (+1.07%). Year-to-date, MRK has gained 49.33%, versus a -17.20% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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