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Merck Is A Rocket On The Launchpad

May 01, 2022 5:56 AM ETMerck & Co., Inc. (MRK)50 Comments
Zvi Bar profile picture
Zvi Bar


  • I continue to believe large healthcare equities with well covered dividends are coming back in style.
  • Merck appears to be breaking through resistance on the back of a well received earnings report.
  • If Merck can hold a price above $92 as a weekly/monthly closing datapoint, I believe MRK stock is likely to blow through $100 within the quarter, or the next one.
  • Keytruda continues to be one of the best performing drugs and a meaningful alternative to chemotherapy for many suffering patients.

President Biden Hosts Event With Johnson & Johnson And Merck CEOs

Alex Wong/Getty Images News

Merck (NYSE:MRK) looks like it is ready to join the party. I believe several large healthcare equities are breaking out of long basing periods. Merck looks like it is about to break out of a multi-year

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Zvi Bar profile picture
Zvi provides advisory services to companies, trusts, and individuals, including consulting expert services regarding retirement and estate planning. Zvi is admitted to practice law in the state of New York, where he offers cash management, Bitcoin, and Trust Protector services. Zvi is also The Claw of The Lava Empire and is an Amazon Influencer. No articles or discussions here shall constitute a legal, fiduciary or advisory role, but solely act as informative press and/or a starting point from which, ideally, further constructive discussion may follow. Comments are welcome, as are questions.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of MRK either through stock ownership, options, or other derivatives. 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.

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Comments (50)

Stocks like Merck are good counterbalances in times like these. Despite a big increase it's still cheap.
Bought MRK for around $60 in 2016 (I think) and topped up at $72 when it dipped into the 70ies a while ago (the handle). Reasonably happy with the performance, I have gains of 50% and received another 20% in dividends. Will probably hold forever.

I am also long Roche, Novo Nordisk, the German Merck KGAA and Eli Lilly. Pfizer looks like an even better deal, with a PE of only 7 and a nice yield. May make sense to sell some overvalued Novo Nordisk or LLY to buy some dirt cheap Pfizer.
Paperone75 profile picture
@Florian Steinberg I'm following German Merck since a while: dividend yield almost non-existent (especially if net of dwt), share appreciation halted and now in stand-by.
Willow Street Investments profile picture
@Florian Steinberg I have trimmed LLY on the way up.
@Paperone75 I bought Merck KGAA for 60 Euro in 2015 (I think, may have been 2014) and it took off to 220, which was crazy overvalued. Never expected it to quadruple within 6 years. Should have sold at least half of it. Now, at 160, it is fairly valued with a PE of 17 again. Good company, will likely hold for a long time. They are quite good at buying quality companies and integrating these into Merck. By buying Millipore and Sigma Aldrich, they are becoming the German Thermo Fisher, a life science powerhouse. They need to pay a small dividend as they use all of their earnings to pay back debt for the acquisitions.
When I owned this a year ago, people couldn't say enough negative things about Merck. Nobody wanted it. Just goes to show how fickle the market is.
dlevine007 profile picture
I bought BMY and MRK around November of last year; there is a tendency of stocks to use round numbers (such as 100 in the case of MRK) as a launching pad for 5-20% gains. My plan is to hold both for a tot of one year and see where we are - I could see MRK between 105-120 assuming the entire market doesn’t fall apart. I could also see BMY heading toward 100.
Barton's Global Market Trends profile picture
Interesting strong resistance at 90 formed by the highs of November/December 2000. That's 21 years ago. But the intraweek high first week of last November reached and turned on that resistance. Let's hope those who have been waiting patiently to break even for two decades had their chance in November 2021.
Paperone75 profile picture
I will buy under 80
birder profile picture
I have about equal positions in MRK, BMY, and PFE. MRK of the three has so far produced the least return. Hopefully that will change for the better.
Et20 profile picture
It was under valued in the 70s, but now Im not so sure. I still think a major acquisition over 10bn is on the cards
yes also..........tatercept.
amazingbergo profile picture
Is it fairly valued now? Really? I picked up some last year a bit cheaper than it is now. Great company. I wished I owned more. There are alot of other names on sale right now. Ie. Vz.
biochemist profile picture
@amazingbergo FAST Graphs indicates that MRK is still fairly valued up to $90-$95. You can definitely find good stocks currently selling at a bigger discount to fair value.
1) COVID products are great to accumulate FCF. Though this stream can disappear fast.
2) Merck has yet to answer..what major production the pipeline after Keytruda.
3) Merck will very soon lose patent protection on Januvia and family, globally.
what is the downside in this unsettled market with large down days ahead?, or is merck immune to some degree?
Zvi Bar profile picture
@john boy I do not think they are immune, to the broad selloff, but they should be a key beneficiary of the macro 'rotation' that is happening. For example, hydrocarbons outperforming and tech underperforming are also part of that rotation.
@Zvi Bar aggreed thank you
Jorel Boston profile picture
New Merck owner here(19 shares). Thanks for the article/good morning reading.
Zvi Bar profile picture
@Jorel Boston Cool. Remember me if I run for the board of directors!
Jorel Boston profile picture
@Zvi Bar 🙌🏽✊🏿 I got your back homie
Dividend Ambassador profile picture
It wouldn’t be inappropriate in terms of valuations for MRK to go to $120 even on this year’s earnings and cash flow.
Zvi Bar profile picture
@killiondt I think the move is likely to go to 135-145, but I think that happens next year. I think MRK had a similar move between early 2018 and late 2019 (roughly 50% in 18 months).
Dividend Ambassador profile picture
@Zvi Bar That works Zvi Bar, that works!
@killiondt It won't go to $120, what would be the catalyst for that? They would need a new and major blockbuster in the pipeline for that.

Glad I only bought a small position of MRK (30 shares), I like my Novo Nordisk shares (120 of those) a lot better.
BM Cashflow Detective profile picture
The actual elephant in the room is the expected free cash flow increase in the future.

Analysts expect it to increase at a rate of 24.87% CAGR over the next three years.

Because of this, Merck is very good value based on its 3-year forward P/FCF/G ratio of just 0.78.

The journey is probably far from over.

I'm long $MRK

Merck's Cash Return On Invested Capital (CROIC) of 14.7% ranks in the 86.7% percentile for the sector with very high moat quality.

TTM CROIC 14.7% / very good 3-year forward P/FCF/G ratio of 0.78 = 18.8% actual CROIC including an additional leverage, due not priced in prospects of 4.1%.

After then, a "Super-Mega Magic Formula Stock" of the 1st class with very high equity growth potential.

It goes without saying that the stock is still a strong buy.
Dividend Ambassador profile picture
@BM Cashflow Detective Agree. So to is BMY still a buy even despite the somewhat disappointing guidance revision.
BM Cashflow Detective profile picture

$BMY is good value based on 3-year P/FCF/G ratio of 1.23.

The full valuation reversal potential has probably not yet been exhausted.

Expected FCF Growth 7.86% CAGR + Yield 2.87% + value return 8.51% CAGR

= estimated 3y total return potential 19.24% CAGR minus 20% margin for error

= estimated risk-adjusted 3y total return potential 15.39%

Only those who know their goal will find the way.
Zvi Bar profile picture
@BM Cashflow Detective I like both MRK and BMY, and both for similar reasons. BMY appeared to be ahead of MRK up through these last earnings reports.
I'm already debating whether to sell half at $90. After the announcement of molnupiravir at a peak time of the pandemic the stock bounced hard off that $90-ish ceiling, and I'm personally questioning if it has enough gas to push through this time, although I admit there's more meat on the bone this time around.

I'm no chartist but it also depends on where one decides to draw the lines. With the same info one could suggest a double top in the recent time frame rather than a multi decade cup and handle. From an academic standpoint I wonder how one weighs the probability of short vs extremely long term patterns, all else being equal.
Zvi Bar profile picture
@xrayjedi Oh, I think short and macro are meaningful this week, but the relative strength in MRK is off the charts at the moment, and upgrades/price increases are probable this quarter.

I do not believe that the antiviral is meaningfully priced into the shares, and also do not think it should be. If it ends up being a long term money maker, that is a boat of gravy on the side. This initial success makes that Acceleron acquisition less risky too, I think.
Considering the now downgraded efficiency of Paxlovid, the pendulum may swing back in favor of Molnupiravir. The world seems to have forgotten about Covid, after the summer it will be back in the news.
Dividend Ambassador profile picture
@brankow maybe even IN the summer. Infection rates are rising yet again.
Willow Street Investments profile picture
Have about 2000 shares in 2 account. If MRK reaches $100 I will trim about 25 shares in my IRA.
Dividend Ambassador profile picture
@Willow Street Investments 2100 shares distributed throughout accounts including 1000 in IRA. I would not trim, including IRA, until at least $120. I might not even trim until $150.
Willow Street Investments profile picture
@killiondt Well, I have the"GE rule". GE used to be my biggest holding...I sold some at $42 in 2007 ($336 post split) and it crashed as you know. Now I restrict my IRA holdings to 20,000 to 40,000 in my IRA...because you never know...Opdivo is a huge seller for MRK and replacing it will be tough.

On the flip side I bought SHW at $45 a share and stupidly sold all of it at 155 and then it went to 1200 before splitting 4 for 1. Now I always trim.

In last 2-3 years I trimmed MRK, LLY, ADM, SWK, HON, ITW, BAX, FAST and CL in my IRA at 52 week highs and bought a higher yielding dividend stock in my IRA.
@Willow Street Investments Hindsight is 20/20. Always remember this; "Any gain is a good gain."
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