Merck & Company (MRK)

They’ve had great success in their drug for lung cancer. Lung cancer is about a 5^th 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.)

(Top Pick Nov 23/15, Up 14.41%) It has fulfilled what he thought. It has a multiyear pipeline of drugs still coming.

The difficulty that chemically based pharmaceuticals have had is basically with current legislation. They spend a lot of money developing drugs, and then they go off patent in a few years and they lose that revenue stream. If you look at the financials of all of the majors, basically it is a flat revenue picture, and any cash flow or earnings progress is made through cost cutting. He would prefer the bio side, such as Biogen (BIIB-Q), Celgene (CELG-Q), etc.

He likes the balance sheet and the income he is getting from this. They have a hepatitis C drug that is coming out as well as a great oncology drug. They have 26 phase 3 trials. Sees a slight increase in revenues over the next 2 years. Dividend yield of 3.22%.

(A Top Pick March 16/15. Down 5.13%.) Has an 8-9% organic growth over the next 5-year model. A lot of new drugs are coming on. Every time it dips to $50, he adds for new clients. Dividend yield of 3.5%. Looking for high $50-$60 in the next year.

One of the blue chip pharma companies out there that will do well if you buy it and tuck it away for a while in an uncertain world while it pays you a good divided. With people getting older and a bigger need for drugs, they have a lot of patents and a good pipeline.

Don’t sell because you’ve done well. They have a pretty good pipeline. If they continue to do good things, don’t pull the trigger, just watch it.

These are the anti-acquisition guys. There are a whole lot of low risk opportunities on drugs they will develop themselves.

He has always been slightly cautious of the patent protected pharma industry. Drugs are very expensive to create, then eventually they come off patent and also there is always the risk of litigation. He prefers TEVA-N, who changed a drug to be several times ago and were able to extend their patent.

For many years he has tended to stay clear of the traditional pharmaceuticals that have primarily chemical-based compounds. Feels that from a financial standpoint they have a very stiff breeze in their face. The generic drug legislation in the US moves these drugs away from these companies and into the hands of generic operators. Basically the pharmas lose a lot of the revenue oomph that they are providing.

Doesn’t see a home run for this, but he does see $63-$64 in 12 months. This has been flat, and is in a hot group. They have a lot of acquisitions and divestitures and have raised the dividend. Also, doing a huge buyback, which they do every year. Yield of 3.15%.

(A Top Pick June 10/13. Up 26.11%.) This still has some upside potential left in it. It is getting up close to his original target.

(A Top Pick June 10/13. Up 24.62%.) This is part of the healthcare group which is now running up against pretty severe resistance. He is now prepared to get off this one and go elsewhere.

(A Top Pick June 4/13. Up 23.02%.) Acquiring Idenix (IDIX-Q) for their hep C product. Hep C is a massive market, and there is a race going on. Merck has a good foothold in the space to begin with, and Idenix has a very good product. Pharmaceutical industry is still relatively under owned.

(A Top Pick June 11/13. Up 28.38%.) Acquiring Idenix (IDIX-Q), which is a good deal for them as it supplies another avenue of growth. At the same time, it was a relatively expensive deal. Valuation is still not too daunting. His one-year target is roughly $64. Still a good Hold.