With both the S&P 500 index and the Dow Jones Industrial Average near their all-time highs, it only makes sense that many stocks are performing quite well right now. Three large-cap stocks that recently hit 52-week highs are Baxter (BAX 1.29%), Merck (MRK -0.40%), and Welltower (WELL -0.21%).
All three of these stocks have trounced the performance of the broader market indexes over the past 12 months. What's behind the successful runs for Baxter, Merck, and Welltower? And are these hot large-cap stocks buys now?
Shares of big medical-supply company Baxter are up nearly 21% over the past 12 months. Nearly all of this nice gain has occurred in 2019. What was the primary catalyst? Baxter's fourth-quarter update on Jan. 31.
Although Baxter isn't delivering revenue and earnings growth that's anything to brag about, the company is winning in the expectations game. Baxter easily topped the consensus Wall Street earnings estimate for the fourth quarter. In addition, the company provided full-year 2019 revenue guidance that pleased investors.
Baxter faces several major headwinds. In particular, sales for its cyclophosphamide chemotherapy are declining in the face of generic competition. CFO Jay Saccaro also noted in the Q4 conference call that lower sales for heart drug Brevliboc are hampering growth.
But despite these challenges, the company still expects 2019 revenue to grow 3% to 4% on an operational basis. That's enough to fuel optimism about Baxter's future after it moves beyond the drag caused by cyclophosphamide and Brevliboc.
Merck stock is up a whopping 54% over the past 12 months. The key to the big pharma company's success is easy to spot: cancer drug Keytruda.
In the fourth quarter of 2019, Keytruda generated nearly one-fifth of Merck's total revenue. Merck's blockbuster drug has picked up 15 approvals from the U.S. Food and Drug Administration so far, including a key approval in October 2018 as a first-line treatment for non-small cell lung cancer.
As critical as Keytruda has been for Merck, though, the company also has several other winners in its lineup. The most important of these is human papillomavirus vaccine Gardasil, which enjoyed year-over-year sales growth of 32% in the fourth quarter. Merck also continues to benefit from solid momentum for Bridion, an injection for reversing neuromuscular blockade induced by rocuronium bromide or vecuronium bromide in adults undergoing surgery, and several of its other vaccines, including pneumococcal vaccine Pneumovax 23.
Healthcare real estate investment trust (REIT) Welltower isn't too far behind Merck, with an impressive gain of 50% over the past 12 months. It's been a pretty steady uptrend overall for Welltower, thanks in part to the company beating analysts' earnings estimates throughout 2018.
Welltower's total return of 59% over the past 12 months is even more attractive. The company pays a solid dividend that currently yields nearly 4.5%. Investors have also liked Welltower's consistency: It recently paid out its 191st consecutive cash dividend.
The primary reason behind Welltower's strong performance has been its strategic portfolio optimization. The company has sold off lower-margin properties and reinvested the proceeds into more profitable properties. In particular, Welltower has shifted its focus from post-acute-care and acute-care facilities to senior housing and outpatient facilities.
Are they buys?
While Baxter, Merck, and Welltower are all high-flying large-cap stocks, I think only one of the three is a solid pick right now.
Although Baxter has played the expectations game very well over the past year or so, I find it hard to be enthusiastic about a stock that faces such stiff headwinds. With shares now trading at nearly 21 times expected earnings, Baxter has also gotten a bit pricey considering its lackluster near-term growth potential.
I have no doubt that Keytruda will keep on delivering for Merck. Unfortunately, the big drugmaker also has several older products that are dragging on overall growth. Merck's not a bad stock, in my opinion, but it's not a great stock, either.
On the other hand, I continue to view Welltower as a strong long-term pick. Last year, I called Welltower "a retiree's dream stock." I think the description still applies. The REIT should benefit tremendously from aging demographic trends. Welltower's dividend is likely to only get better. This is one large-cap stock that I think could set plenty of new highs over the years to come.