Opinions
Dr. Richard Evans
Merck & Company
MRK-N
COMMENT
Jan 25, 2017
Stock price when the opinion was issued
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Certainly some stocks are less vulnerable to issues involving tariffs. What comes to mind are healthcare companies. You could look at some of the beaten-down companies that really didn't do well last year, as they're doing quite well today. Try this name, which he owns.
Whole healthcare complex was weak in 2023 and 2024, so the valuations were reasonable coming into 2025. Current market downtrend plus today's threat of tariffs on pharmaceuticals, and we don't know how this will all end. Drug pipeline is particularly exciting.
Can't tell you when it will turn the corner, but it's a good component of a diversified portfolio.
Pharmas have not done well. MRK trades at 8x PE. They have one large drug, Keytruda, which makes up 46% of their revenues, which is risky. The chart looks terrible. But MRK has dozens of drugs in phase 2 and 3 trials. Also, this pays a fine dividend. Now is a fine time to enter this.
Bought is heavily this morning. Is a diversified, large-cap pharma with 45% of revenue is oncology. Keytruda goes off patent in 2028, so there's a race to offset that patent. Vaccines face issues--Gardisil isn't performing in China, and RFK Jr. is anti-vaccines. However, if they combine an enzyme with a drug like Keytruda, does that reset the patent? Does the patent continue? That is in debate.
Whole sector's been problematic, so this name could be just caught up in that downdraft. Fundamentally looks pretty good. Could be an opportunity. ROC last few years has been 7%, 9%, 9%, 10%, 11%. Nothing wrong with those numbers. Pretty clean balance sheet, decent working capital position.
Revenue growth last quarter down 1.6%. Before that, it usually ran around a positive 6-7%. Yield is 3.9%, chart looks great as they keep bumping it up once a year -- cashflow and payout ratio to support that look really healthy.
They’ve had great success in their drug for lung cancer. Lung cancer is about a 5th of the demand for immuno ecology agents, but the balance of the market is 4X larger and consists of many indications. If you look at who is in the lead, it is more often Bristol-Myers (BMY-N) than this company. Merck had incorrectly been left behind on valuation, but that has now been lifted. Capital markets are looking at who wins and who loses in immunology as an absolute, but that is not the case, it is going to be a balance between the 2. This is a fine company and the valuation is reasonable, but he would rather be with Bristol-Myers. (See Top Picks.)