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3 Stocks for Long-Term Investors to Buy in 2023

As inflation shows signs of cooling, the Fed has significantly slowed its aggressive rate hike policy. Moreover, given a tight labor market, experts believe the economy might avoid a recession. Amid the rising optimism, we think quality stocks Merck (MRK), PepsiCo (PEP), and Limbach (LMB) are ideal buys for long-term investors. Keep reading...

The Fed recently raised interest rates by 25 bps, its first hike for 2023. This marks a significant slowdown in the Fed's aggressive monetary tightening policy amid declining inflation. Fed Chair Jerome Powell said, "We can now say I think for the first time that the disinflationary process has started."

Moreover, the U.S. job market remains historically tight. Job openings increased by 572,000 to a five-month high of 11 million on the last day of December 2022, beating economists' estimate of 10.25 million.

Given the improving economic circumstances, Yardeni Research's Ed Yardeni believes the U.S. economy could avoid a recession. Moreover, the International Monetary Fund upped its global growth forecast to 2.9% in 2023, an improvement from its earlier forecast. The global economic outlook for the long term seems pretty optimistic.

Therefore, we think quality stocks Merck & Co., Inc. (MRK), PepsiCo, Inc. (PEP), and Limbach Holdings, Inc. (LMB) are ideal buys for long-term investors.

Merck & Co., Inc. (MRK)

MRK operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health.

On February 2, 2023, Robert M. Davis, chairman and CEO said, "Our science-led strategy is working as we continue to build a sustainable engine that will drive innovation and generate long-term value for patients and shareholders well into the next decade."

MRK's forward P/E of 18.22x is 32.2% lower than the industry average of 26.87x. Its forward EV/EBITDA of 11.81x is 13.3% lower than the industry average of 13.62x.

MRK's trailing-12-month gross profit margin of 70.85% is 27.7% higher than the industry average of 55.48%. Its trailing-12-month EBITDA margin of 40.82% is 944.1% higher than the industry average of 3.91%.

MRK has paid dividends for 12 consecutive years. Its dividend payouts have increased at 9.2% CAGR for the past five years. Its current dividend yield is 2.73%, and its four-year average yield is 2.95%.

MRK's total sales came in at $13.83 billion for the fourth quarter ended December 31, 2022, up 2.3% year-over-year. Its Pharmaceutical segment revenue increased marginally year-over-year to $12.18 billion.

Analysts expect MRK's revenue to be $58.07 billion for 2023. Its EPS is expected to rise 11.7% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 26.2% to close the last trading session at $103.46.

MRK's POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MRK has a B grade for Value, Stability, Sentiment, and Quality. MRK is ranked #12 out of 171 stocks in the Medical – Pharmaceuticals industry. Click here for additional MRK ratings (Growth and Momentum).

PepsiCo, Inc. (PEP)

PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. Its seven segments are Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia and New Zealand, and China Region.

PEP's trailing-12-month gross profit and EBITDA margins of 53.24% and 18.12% are 69.7% and 62.7% higher than the industry averages of 31.37% and 11.14%, respectively.

PEP has paid dividends for 50 consecutive years. Its dividend payouts have increased at 7.4% CAGR for the past five years. Its current dividend yield is 2.68%, while its four-year average yield is 2.77%.

PEP's net revenue came in at $21.97 billion for the third quarter ended September 3, 2022, up 8.8% year-over-year. Its non-GAAP net income increased 10% year-over-year to $2.73 billion. Also, its non-GAAP EPS came in at $1.97, representing a 10.1% year-over-year rise.

Street expects PEP's revenue to increase 7.4% year-over-year to $85.34 billion for the yet-to-be-reported fiscal year 2022. Its EPS is expected to increase 8.3% year-over-year to $6.78 for the same period. It surpassed EPS estimates in all four trailing quarters. PEP's shares have lost marginally intraday to close the last trading session at $169.97.

PEP's overall A rating equates to a Strong Buy in our proprietary rating system. It also has an A grade for Quality and a B for Growth, Stability, and Sentiment. PEP is ranked #6 out of 37 stocks in the A-rated Beverages industry. Get additional PEP ratings for Value and Momentum here.

Limbach Holdings, Inc. (LMB)

LMB operates as an integrated building systems solutions company in the United States. It operates in two segments, General Contractor Relationships and Owner Direct Relationships.

LMB's forward EV/Sales of 0.31x is 82.8% lower than the industry average of 1.82x. Its forward Price/Sales of 0.26x is 81.8% lower than the industry average of 1.45x.

LMB's gross profit came in at $24.85 million for the quarter ended September 30, 2022, up marginally year-over-year. Its cash and cash equivalents came in at $28.42 million for the period that ended September 30, 2022, compared to $14.48 million for the period ended December 31, 2021.

LMB's revenue is expected to increase by 3.5% year-over-year to $507.31 million for the yet-to-be-reported fiscal year 2022. Its EPS is expected to increase by 12% per annum for the next five years. Over the past year, the stock has gained 58% to close the last trading session at $13.41.

It's no surprise that LMB has an overall A rating, equating to a Strong Buy in our proprietary rating system. Also, the stock has an A grade for Sentiment and a B grade for Value and Quality. Within the A-rated Industrial – Services industry, it is ranked #4 out of 82 stocks. To see LMB's additional POWR Ratings for Growth, Momentum, and Stability, click here.

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MRK shares rose $0.38 (+0.37%) in premarket trading Friday. Year-to-date, MRK has declined -6.75%, versus a 8.98% rise in the benchmark S&P 500 index during the same period.



About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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