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2 Stocks the Smart Money on Wall Street Owns the Majority Right Now

The Federal Reserve is expected to lower the pace of its rate hikes from next month. However, concerns about an economic slowdown are still evident. Hence, this might be the time to follow the smart money and buy Merck (MRK) and Yelp (YELP). Institutions own the majority of shares of these companies. Read on…

Minutes from the Federal Reserve’s November meeting show that the central bank is expected to switch to a smaller rate hike from next month, as some members are concerned about the tight monetary policy's impact on financial stability.

The minutes noted that the smaller hikes would allow policymakers to evaluate the impact of the succession of rate hikes. The market expects a 0.5 percentage point increase in December.

However, global investment banks have forecasted a slowdown in economic growth next year, as the raging inflation has set off a fast monetary policy tightening cycle. Even as interest rate increases are expected to slow, recessionary worries are still evident.

On the other hand, this volatile market backdrop offers investors opportunities to invest in trusted stocks at low prices and garner returns over the long term. To that end, it could be wise to follow the smart money and buy Merck & Co., Inc. (MRK) and Yelp Inc. (YELP). Institutions own more than 75% shares of these companies.

Merck & Co., Inc. (MRK)

Healthcare company MRK operates through two segments, Pharmaceutical and Animal Health. The company offers human health pharmaceutical products and markets veterinary pharmaceuticals. MRK’s 76.35% shares are held by institutions.

On November 21, MRK and Imago BioSciences, Inc. (IMGO) announced that they had entered into an agreement for MRK to acquire IMGO through a subsidiary for an approximate total equity value of $1.35 billion. The acquisition is expected to expand MRK’s hematology portfolio.

On November 1, a ten-year strategic partnership agreement between MRK and Veeva Systems Inc. (VEEV), building on their existing 12-year partnership. This strategic partnership is expected to accelerate MRK's digital strategy. 

For the fiscal third quarter of 2022, MRK’s sales increased 14% year-over-year to $14.96 billion. Excluding certain items, its non-GAAP net income and non-GAAP EPS came in at $4.7 billion and $1.85, respectively, up about 4% from their year-ago values.

The consensus EPS estimate for the current year (fiscal 2022) of $7.38 indicates a 22.6% year-over-year improvement. Likewise, the consensus revenue estimate of $59.07 billion for the same year reflects a rise of 21.3% from the prior year. MRK has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 29% over the past year and 39.4% year-to-date to close its last trading session at $106.82.

MRK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MRK has a Value, Sentiment, and Quality grade of B. In the 162-stock Medical – Pharmaceuticals industry, it is ranked #11.

Click here to see the additional POWR Ratings for MRK (Growth, Momentum, and Stability).

Yelp Inc. (YELP)

YELP operates a platform that connects consumers with local businesses in the United States and internationally. The company’s platform covers various regional business categories. It also offers free and paid advertising products to businesses. Institutions hold 96.10% of YELP shares.

YELP’s net revenue increased 14.8% year-over-year to $308.89 million for the fiscal third quarter ended September 30. Its adjusted EBITDA came in at $73.94 million, up 4.6% year-over-year. Net income per share attributable to common stockholders for the same period came in at $0.13.

YELP expects fourth-quarter net revenue to be in the range of approximately $300-$310 million and in the range of $1.185-$1.195 billion for the full year. The company expects adjusted EBITDA to be in the range of approximately $75-$85 million for the fourth quarter and $265-$275 million for the full year.

Street expects YELP’s EPS to increase substantially year-over-year to $0.25 for the quarter ending March 2023. Analysts expect revenue to increase 10.3% year-over-year to $305.17 million for the same period. The company has topped consensus EPS estimates in three out of the trailing four quarters.

YELP has gained 3.8% over the past six months to close its last trading session at $29.57. It is up 1.4% intraday.

It’s no surprise that YELP has an overall B rating, which translates to Buy in our POWR Ratings system. The stock has an A grade for Quality and a B for Value. It is ranked #1 of 58 stocks in the Internet industry.

To see YELP’s ratings for Growth, Momentum, Stability, and Sentiment, click here.

MRK shares were trading at $106.82 per share on Thursday morning, down $0.08 (-0.07%). Year-to-date, MRK has gained 42.91%, versus a -14.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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