Merck & Company (MRK-N)

Pharma companies are always facing the patent wall, needing to spend R&D to innovate new drugs. Very difficult to predict the next blockbuster. He prefers and owns JNJ and ABT, more diversified.

Pharma is ~90% of revenue, smaller segment is animal care. Pulled back about 23% from recent peak in June. Yield is 3%, has grown at 5% compound pace over last 5 years. So total compounded shareholder return ~10% over the last decade. Pullback probably buyable. Steady, non-cyclical, a need not a want.

Risks include lower guidance on Gardasil (second-biggest drug) sales in China, coming off patent in 2028. Keytruda (biggest drug) also coming off patent then. Those two together account for just over 50% of revenues. Need to fill hole in pipeline either through R&D or M&A.

Healthcare space provides nice combination of growth with stability, in case we get into latter stage of economic cycle. Likes the space, but not this name. Price fell below 200-day MA in July, though that 200-day MA is moving higher. Technicals are not appealing.

He owns LLY and NVO, MCK and CAH.

Is famous for Keytruda, a great drug used against cancer. Their main patent will expire in 2028, so there's time. He expects them to go a big acquisition. Steady and predictable. Profitable. Lots to like.

Owns shares in the company, and will continue to hold. Very strong R&D department. Lots of excellent patents that have a long runway. Good brand name with consumers. Excellent financial results. Would recommend for the long term investor. 

The whole space has lower beta, lower risk. 9% YOY revenue growth, well ahead of estimates. Lots in the pipeline. 15x forward PE, yield is 2%. Risks of competition, but her target is still $140 so lots of upside. Pullback provides great entry point. Analysts say Outperform of almost 25% upside from here.

Is a huge believer in this, but China is a short-term problem.

Sector's low beta makes it immune to economic shocks. YOY revenue growth of 9%. New products in pipeline, promising collaborations, JV with Moderna. FDA-approved hypertension drug has great growth prospects. Forward PE of 15.4x, still attractive. Generous dividend yield of over 2%. Another 12% upside from here.

The pharma sector is always in the political crosshairs. Both candidates have vowed reforms, but in different approaches. But both like to attack drug prices, both in amount and how they are paid (third party insurance, medicare, etc.). In other elections, though, the 'talk' is often worse than what actually happens. Both candidates know the sector is important for US growth, and the population is getting older. MRK and others can best compete with their drug pipeline, so that they can grow even with restrictions on revenue/prices. For MRK in specifically, consensus calls for very strong EPS growth in each of the next two years. If MRK can meet expectations, we think it can overcome any political fallout. It is also quite cheap at 14X earnings so some uncertainty is embedded in prices already.
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Healthcare was out of favour for a long time, but is starting to enjoy some love. Keytruda, their drug, sells over $25 billion revenues--the most in history--and this patent won't expire until 2028-9, so there's time

Keytruda keeps working.

Chart looks pretty good, trading above 200-day MA. Higher highs and higher lows this year. Pretty good PEG ratio, fairly cheap valuation. Trades at 15x estimated earnings, not bad at all.

Prefers growthier areas, such as weight loss and diabetes, and distributors such as CAH and MCK.

Owns neither. If had to choose, go with MRK based on valuation. Pretty good product pipeline, investing a lot in R&D to keep it strong. Looking to expand operating margins.

It reports Thursday. He expects them to announce new drug applications, the anti-cancer portfolio and their acquisitions.

Shares jumped today after getting approval for their pulmonary hypertension drug. This is huge. In 2023, 40% of their sales were from the keytruda drug, but this will go off patent in 2028