Merck & Company (MRK)

A good drug pipeline with many promising drugs in phase 2 trials, though they have to overcome the patent cliff of Keytruda.

They have a good pipeline that will help offset the loss of their major Keytruda drug when it goes off-patent. MRK is good at buying and tucking in companies. Their 2025 chart wasn't that great until the end of the year when the sector caught a bid.

Is bullish healthcare for 2026 because of its growing customer base (baby boomers) who will need health services. He's been adding to Merck, post-Keytruda.

He made a mistake in selling this. It's now back to $94 and wants to hit $102.97, a 52-week high.

So many in the space look inexpensive on PE. These businesses are mature, with weaker product pipelines, but generate significant cash. Flipside is that they don't grow. Costs have really risen for all the FDA approval phases, making drug development so much harder.

True, Canadians have to go to the US for healthcare exposure. But he'd prefer ABT, ALC, or BSX for their better growth profiles.

Healthcare in US has had one of its worst performances over 10 years. Most sector $$ has gone to obesity drug makers. Two key drugs, more in the pipeline. Quality company. Very cheap, so he'd look at it. Based in New Jersey, so very little tariff impact. Dividend yield over 4%.

Culprit for stock pain is Keytruda, coming off patent, and providing 40% of revenues. Slashing costs. Pretty darn cheap down here at 8x for 2027. But no growth rate after Keytruda. Better places in pharma to park capital.

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.

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.

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.

Keytruda is now a decade old, and a lot more competition has come on. Great company. You could probably buy here, but see his Top Picks.

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.