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Volatility And Pullback Presenting An Opportunity With Merck

Mar. 06, 2020 6:05 PM ETMerck & Co., Inc. (MRK)8 Comments
Rick Pendergraft profile picture
Rick Pendergraft


  • Merck dropped almost 20% from its December peak to its February low and this put the stock in oversold territory.
  • The company has solid fundamental indicators with the ROE and profit margin well above average.
  • Sentiment toward the stock is skewed to the bullish side, but the indicators aren't at extreme levels of optimism.
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The selloff and volatility we have seen over the last few weeks is presenting some opportunities on quality stocks. We have seen stocks from every sector hit with massive selling with some industries getting hit harder than others. Looking through the charts of some of the top rated companies from a fundamental perspective, I isolated a handful of stocks that I felt were presenting investors with good buying opportunities. One such company was Merck & Co. (NYSE:MRK).

Looking at the chart for Merck we see that the stock peaked in mid-December and then fell almost 20% from the peak to the low last week. This selloff took the stock out of overbought territory on both the 10-week RSI and the weekly stochastic indicators.

MRK SA.png

We see that both of the overbought/oversold indicators hit oversold territory last week and that is the first time since November 2017 that both were in oversold territory at the same time. At that point in time the stock was trading down between $50 and $52.50 per share.

The stock rallied in December and in January '18, but it fell again at the end of January when the trade war really got started. The stock would pull back to the $50-$52.50 range once again before eventually taking off on a rally that saw the stock go up over 60%.

Something else that stood out on the weekly chart was how the stock pulled back to the 104-week moving average last week. From there the stock rallied toward the end of last week and in to this week. The trend line could act as support going forward.

Merck has Solid Management Efficiency Readings

While I believe the technical analysis of a stock is important in telling us when we should buy or sell a stock, I believe the fundamentals

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This article was written by

Rick Pendergraft profile picture
Rick Pendergraft is a Senior Editor on the Opinion & Analysis team at Seeking Alpha. Prior to joining Seeking Alpha, he studied, traded, analyzed, and wrote about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. After starting college as an education major, wanting to teach economics, Rick eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (8)

Investor Oliver profile picture
Any thoughts on the planned spin off? You did not mention it at all, even though that is kind of important...
KMR holder profile picture
Merck is oversold, but that is a measure of stock price momentum. Merck is not cheap based on value metrics. It was last cheap when it was trading below $60 two years ago.
Your chart actually shows that for about 6 months the shares traded at prices below the long term moving average. Have sales at Merck increased almost 50% in two years? No but the price had. A drop in price of 20% from the high has only begun to reduce its excessive valuation.

Pfizer on the other hand is not as oversold but is actually much cheaper. It has been trading below that same moving average now for months.

Merck may rebound faster but PFE is cheaper.
Jim_Purzickis profile picture
You can't compare MRK to PFE. MRK deserves a massive premium over PFE.
KMR holder profile picture
Of course you can compare the two, I just did....HA

What I did if you notice was to compare the price paid to own the shares of Merck today and its price two years ago. What was the better deal. Owning it over the past two years or owning it now?

Compared to PFE, which is cheaper now. I don't trust P/E as much as P/S. Earnings are to flexible in the hands of management sales are less so.

I also didn't say that PFE will appreciate faster than MRK going forward, because nobody can know that with certainty. I own PFE in my personal account and MRK in a family account. I am not selling either, but I would sooner add to the PFE position. The price is simply a better current value.
Jim_Purzickis profile picture
PFE is a value trap, having done nothing for 5 years. Have at it, if you like.
Jim_Purzickis profile picture
Agreed, I bought MRK this week on the pullback.
tbird48 profile picture
Good straight forward analysis, and I agree. I already had a small position and I'm ready to load up when this panic selling reverses. Long $MRK
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