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3 Wide-Moat Stocks to Withstand a Market Downturn: Microsoft, Merck, and Blackbaud

The major stock market indices suffered a sell-off as the news of Russia’s military action in Ukraine broke. But because wide-moat companies generally fare well in challenging times like these, we believe VanEck Vectors Morningstar Wide Moat ETF’s (MOAT) holdings Microsoft (MSFT), Merck & Co. (MRK), and Blackbaud (BLKB) might be reasonable bets now. Read on.

The escalating tensions between the U.S. and Russia over Ukraine caused stocks to tumble on Wednesday. The S&P 500 declined 1.8%, the Dow Jones Industrial Average (DJIA) fell 464.85 points, while the tech-heavy Nasdaq Composite slid 2.6%. The market opened in the red on Thursday after Russia launched military actions in Ukraine.

‘Wide-moat’ companies generally can withstand tough times, which gives them an edge over other company. The VanEck Vectors Morningstar Wide Moat ETF (MOAT) has returned 6% over the past year.

Given the unstable environment caused by escalating geopolitical tensions, we think MOAT holdings Microsoft Corporation (MSFT), Merck & Co., Inc. (MRK), and Blackbaud, Inc. (BLKB) could be reasonable bets now.

Microsoft Corporation (MSFT)

MSFT in Redmond, Wash., is a software behemoth that provides software services, solutions, and devices worldwide. The company sells its products through distributors, OEMs, resellers, or digital marketplaces. It has a more than $2 trillion market capitalization.

On February 1, Striim, an enterprise-grade data integration, and streaming solution platform announced the expansion of its strategic relationship with MSFT Azure to  accelerate the data modernization journey to Azure. Rohan Kumar, Corporate Vice President, Azure Data at MSFT, said, “We are pleased to work with Striim to provide our customers with a fast way to replicate their data to the Azure platform and gain mission-critical insights into data from across the organization.”

On January 24, MSFT and FedEx Corp. (FDX) announced the next solution as part of their multi-year agreement around transforming commerce, supply chains, and logistics. This could benefit the company.

On January 18, MSFT declared its plans to acquire Activision Blizzard Inc. (ATVI), a game development and interactive entertainment company, for $68.7 billion. The acquisition is expected to accelerate the growth of MSFT’s gaming business across different mediums and provide the building blocks of the ‘metaverse.’

For its fiscal second quarter, ended December 31, MSFT’s total revenue increased 20.1% year-over-year to $51.73 billion. Its operating income increased 24.3% from the prior-year quarter to $22.25 billion. Its net income and EPS stood at $18.77 billion and $2.48, respectively, registering increases of 21.4% and 22.2% year-over-year, respectively.

Analysts expect MSFT’s EPS to improve 8.8% year-over-year to $2.36 for its fiscal quarter, ending June 2022, while the Street’s $52.96 billion revenue estimate for the same period indicates a 14.7% rise from the prior-year period. In addition, MSFT has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.

MSFT’s stock has gained 20.2% in price over the past year to close yesterday’s trading session at $280.27.

MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MSFT has a Sentiment grade of A and a Stability and Quality grade of B. In the 164-stock Software – Application industry, it is ranked #18. Click here to see the additional POWR Ratings for MSFT (Growth, Value, and Momentum).

Click here to check out our Software Industry Report for 2022

Merck & Co., Inc. (MRK)

MRK in Kenilworth, N.J. is a global healthcare company operating through Pharmaceuticals and Animal Health segments. Its pharmaceuticals segment markets human health pharmaceuticals and vaccines, while the Animal Health segment offers veterinary pharmaceuticals, vaccines, and monitoring products.

On February 8, MRK and Ridgeback Biotherapeutics announced that approximately 3.1 million courses of molnupiravir, an investigational oral antiviral COVID-19 medicine, have been provided to the U.S. government for distribution nationwide. The company has also entered advance purchase and supply agreements for the medicine in more than 30 markets globally. This is expected to benefit the company.

On January 27, MRK announced that the European Commission had approved KEYTRUDA, MRK’s adjuvant treatment of adults with renal cell carcinoma (RCC). The approval allows the KEYTRUDA monotherapy to be marketed in all 27 European Union member states plus Iceland, Lichtenstein, Norway, and Northern Ireland. This should bolster the company’s revenues.

For its fiscal fourth quarter of 2021, MRK’s sales were up 23.5% year-over-year to $13.52 billion. Its non-GAAP net income from continuing operations improved 83.5% from the prior-year quarter to $4.58 billion. And its non-GAAP EPS from continuing operations increased 83.7% from the same period in the prior year to $1.80.

The Street expects MRK’s EPS to improve 56% year-over-year to $1.81 in the quarter ending March 2022, while the Street's $14.56 billion revenue estimate for the same quarter indicates a 20.6% rise from the prior-year quarter.

The stock has gained 6.6% over the past year to close yesterday’s trading session at $75.84.

It’s no surprise that MRK has an overall A rating, which translates to Strong Buy in our POWR Rating system.

MRK has a Growth, Value, Stability, Sentiment, and Quality grade of B. In the 179-stock Medical – Pharmaceuticals industry, it is ranked #1.

To see the additional POWR Rating for Momentum for MRK, click here.

Click here to checkout our Healthcare Sector Report for 2022

Blackbaud, Inc. (BLKB)

BLKB operates as a cloud software solutions provider to non-profits, foundations, companies, education and healthcare institutions, and other social good entities internationally. The Charleston, S.C., company’s offerings include fundraising and relationship management solutions and grant and award management solutions.

On January 3, BLKB announced that it had acquired global social impact technology company EVERFI in a cash and stock transaction for $750 million. The acquisition is expected to expand the company’s total addressable market (TAM) and accelerate its revenue growth.

On November 11, BLKB announced that it has teamed up with marketing technology company Campaign Monitor to integrate its email marketing solution with BLKB’s fundraising and donor management software solution, thereby creating an automated email marketing solution designed for the needs and goals of nonprofits and social good organizations. This initiative might prove to be beneficial for the company.

BLKB’s total revenue increased 2.2% year-over-year to $247.89 million in its fiscal fourth quarter, ended December 31. This can be attributed to a 4% rise in recurring revenue from the prior-year quarter to $238.58 million. For the year ended Dec. 31, 2021, the company’s cash, cash equivalent, and restricted cash balance came in at $651.76 million, up 1.1% from the prior year.

The $3.13 consensus EPS estimate for fiscal 2023 indicates a 9.8% year-over-year increase. The $1.12 billion consensus revenue for the same year reflects a 5.2% rise from the prior year. In addition, BLKB topped consensus EPS estimates in each of the trailing four quarters.

The stock declined 5.5% in price intraday to close yesterday’s trading session at $58.33.

This promising outlook is reflected in BLKB’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

BLKB has a Growth and Quality grade of B. It is ranked #12 of the 58 stocks in the Software – Business industry.

In addition to the POWR Rating grades we’ve stated above, one can see BLKB ratings for Value, Momentum, Stability, and Sentiment here.

Click here to check out our Software Industry Report for 2022

MSFT shares were trading at $294.64 per share on Thursday afternoon, up $14.37 (+5.13%). Year-to-date, MSFT has declined -12.21%, versus a -9.90% 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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