Earnings season has been ruthless, but not random. Strong prints are getting dumped, yield names are waking up, and the market’s quietly rewarding capital discipline again.

This week’s setup has legacy sectors with real cash flow, buybacks, and something to prove. From healthcare shakeups to financials quietly fixing themselves, we’re tracking where value’s finally starting to matter again.

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Healthcare

Merck (NYSE: MRK) is in the news for all the wrong reasons, or at least, that’s how the market’s reacting.

The company posted Q2 earnings of $2.13 per share, comfortably ahead of estimates. But instead of a rally, the stock dropped over 6% and extended its year-to-date decline to more than 15%.

The market’s focus is on a narrower full-year revenue and EPS outlook, a sharp 55% drop in Gardasil vaccine sales (largely tied to China), and headline revenue that missed expectations by a whisker.

That, paired with some one-time charges and FX headwinds, was enough to send shares lower.

But here’s why it’s actually in the news: the selloff looks disproportionate to the fundamentals. Oncology remains a growth engine – Keytruda sales alone hit $7.96B. Animal Health grew 11%.

And gross margin quietly improved to 82.2%. Add in insider buying and a $10B acquisition of Verona Pharma for its COPD asset, and it’s clear Merck’s not standing still.

Investors are treating it like a busted growth name. But what’s really playing out is a transition, one where Merck shifts to longer-term durability.

The market might be bailing early, but patient capital is starting to notice.

Financials

Lincoln National (NYSE: LNC) wasn’t supposed to surprise anyone. But it did, and not just with a $2.36 EPS print that crushed estimates by $0.48.

The real story was what powered the beat: Group Protection income jumped 33%, margins hit a record 12.5%, and alternative investments clocked a rare 10% return.

Layer that on top of its newly cleaned-up balance sheet, thanks to the Bain Capital deal – a 9.9% stake sold at a premium – and suddenly Lincoln looks less like a zombie insurer and more like a leveraged recovery story with teeth.

Capital ratios are now over 420%. Leverage dropped 330bps. And there’s dry powder to lean into fixed and index-linked annuities, rather than bleeding from legacy life contracts.

This isn’t a perfect machine. Life remains a drag. Cash flow hasn’t broken out. And the turnaround still hinges on execution. But the playbook’s on the table; expand margins, shed the dogs, deploy capital at higher ROIC.

At 10x earnings and with a 4.7% yield, LNC has room to run if management hits its targets. For investors watching the post-rate-hike reshuffle, this is one of the cleaner “quiet fix” plays out there.

Healthcare

Bristol-Myers Squibb (NYSE: BMY) was dead money for most of 2025. Down over 20% YTD while the S&P’s up 13%, it’s been a case study in value trap psychology. But last quarter offered a break in the pattern.

Q2 net sales rose 1%, and the company raised full-year revenue guidance; not exactly fireworks, but a clear signal that the bleeding may be slowing.

Camzyos, Breyanzi, and the broader “growth portfolio” actually showed momentum. Operating cash flow exploded 70% YoY, even with gross margin pressure still hanging over the story.

Meanwhile, BMY’s P/S ratio has collapsed to multi-year lows, now trading at a ~45% discount to the sector.

We still need to watch the margin story closely. But capital return plans haven’t wavered, and the pipeline is quietly doing what it’s supposed to. The setup now is less about euphoria and more about closing a massive valuation gap.

This isn’t a rerating overnight,  but it’s not the same drift story either. If operating leverage starts to show and the product cycle holds, this could shift from a contrarian gamble to a consensus re-rate. For now, value investors are sniffing around for a reason.

Adidas just hiked its dividend by over 200%, pushing its yield to 0.62% and hinting at stronger-than-expected free cash flow strength. The Street still hasn’t caught up; shares have dropped 17% in a week on tariff jitters and broader retail anxiety.

But the fundamentals haven’t cracked. EPS is still on track to grow 88% in 2025 and another 47% in 2026. The PEG sits at 0.5, despite a premium 26x multiple, and analysts are quietly moving from “hold” to “strong buy” across the board.

This isn’t about margin recovery, it’s about sentiment overshooting to the downside. The $34 billion brand is leaner, better capitalized, and just posted a clean top- and bottom-line beat.

Technicals are shot, but the setup looks asymmetric. If tariffs cool off or consumer spending stabilizes, ADDYY could bounce hard.

Quanex has slipped under the radar after a slow Q1 for housing, but the earnings growth hasn’t gone anywhere – up 20% in 2025 and another 14% next year. Shares are down 19% YTD and trading at just 7.4x forward earnings, with a PEG of 0.54.

Institutions are loading up. GSA Capital nearly tripled its stake, Vanguard added again, and insider activity is creeping up. The latest earnings beat wasn’t small either – $0.60 vs. $0.48 expected, with revenue clearing consensus by $12 million.

This is what value compression looks like when no one’s watching. Quanex still throws off a 1.6% yield and has a debt-to-equity ratio under 1.0. Housing doesn’t need to rip, it just needs to hold flat.

With building materials bouncing off the lows and volume picking up, NX might have already bottomed.

Solar stocks have been crushed this quarter, and ARRY hasn’t been spared, down nearly 12% in a week despite stable full-year earnings forecasts and a 35% growth runway into 2026. But the valuation is where it gets interesting: the stock trades at just 9.9x forward earnings, with a PEG under 0.5.

This is a classic setup this week: hated sector, no blowups in guidance, and fundamentals that haven’t cracked. Gross margins remain stable, and the company is still winning contracts in international markets where tariffs don’t bite.

No analyst downgrades have landed despite the price action, and shorts are thinning out. There’s no clear near-term catalyst, but that’s often how value reversals start.

ARRY doesn’t need the solar trade to rip. It just needs the bleeding to stop. And if the next earnings beat clears expectations, this one could catch a tailwind fast.

That's our coverage for today; thanks for reading! Reply to this email with feedback or any value names you'd like us to dig into.

Best Regards,
—Noah Zelvis
Undervalued Edge