We recently published a list of 10 Most Profitable Value Stocks to Buy Now. In this article, we are going to take a look at where Merck & Co Inc. (NYSE:MRK) stands against other profitable value stocks to buy now.
Matt Powers, Managing Partner at Powers Advisory Group, joined the discussion on CNBC’s ‘Power Lunch’ on March 11 to provide insights into the shift from growth to value investing and the resurgence of traditional dividend strategies. Powers emphasized that this transition has become increasingly evident, particularly following last week’s market activity and the events of March 10. He noted that while the market behavior on March 11 might tell a slightly different story, the broader trend is unmistakable. For years, growth stocks dominated portfolios, but now investors are gravitating toward value and dividend investing, which had been largely overlooked for over a decade. Powers attributed this shift to various catalysts, which included tariffs and policy uncertainty from Washington and President Trump’s unpredictable stances. He described investors as exhausted, and welcomed the normalization of equity markets and a return to diversification and traditional investing.
Powers highlighted the importance of diversification, contrasting high-growth portfolios with those focused on dividends. He pointed out that ETFs have outperformed large-cap growth funds year-to-date, with a notable 11-point difference in returns. The dividend fund is up 5%, while the large-cap growth fund is down 6%. He explained that tech stocks dominate large-cap growth funds and account for nearly half of their portfolios. In contrast, dividend-focused funds are more diversified across sectors such as healthcare, financials, and staples. This diversification reduces concentration risk and provides defensive characteristics in an uncertain market environment. Powers elaborated on the leadership shift between these two types of funds. While growth ETFs feature holdings like the MAG7, dividend ETFs focus on blue-chip companies. A year ago, growth stocks were investor favorites, but now value stocks are taking the lead, which is a trend reflected in their performance. He stressed the importance of broadening diversification within portfolios and not ignoring value opportunities.
Methodology
We sifted through the Finviz stock screener to compile a list of the top stocks with a forward P/E ratio under 15. We then selected the 10 stocks with a TTM net income greater than $1 billion and that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024.
Note: All data was recorded on March 13.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Scientist in a lab working on a research project, focusing on biotechnology and healthcare advancements.
Merck & Co Inc. (NYSE:MRK)
TTM Net Income as of March 13: $17.117 billion
Forward P/E Ratio as of March 13: 10.36
Number of Hedge Fund Holders: 91
Merck & Co Inc. (NYSE:MRK) is a healthcare company that operates across pharmaceutical and animal health sectors. It offers drugs like Keytruda (immunotherapy) and Gardasil (vaccine), alongside veterinary solutions. It focuses on innovation and partnerships to address critical medical needs.
Keytruda’s 2024 sales reached $29.5 billion, which was an 18% year-over-year increase. This was due to its expanding use in various cancer treatments, both in metastatic and earlier stages. The company is innovating administration methods and developing a subcutaneous version. This method involves injecting the medication into the layer of fatty tissue that lies under the skin. Gardasil’s 2024 sales totaled $8.6 billion. This was a 3% decline, which was attributed to the drop in Chinese sales. Specifically, Q4 2024 sales were $1.6 billion, which indicated an 18% decrease. Sales in China were down due to decreased consumer spending, which led to lower-than-expected demand and excess inventory.
On February 10, TD Cowen revised its stance on Merck & Co Inc. (NYSE:MRK) and downgraded the stock from Buy to Hold. The price target was shifted downward from $121 to $100. The firm’s optimism decreased due to the increasing concerns surrounding Gardasil’s sales challenges in China. The firm also pointed out that the company faces Keytruda’s impending loss of exclusivity, which is scheduled for 2028 in the US and 2031 in the European Union.
Oakmark Equity and Income Fund acknowledges Keytruda’s success and strong pipeline. It stated the following regarding Merck & Co Inc. (NYSE:MRK) in its Q3 2024 investor letter:
“Merck & Co., Inc. (NYSE:MRK) is a global pharmaceutical firm with leading oncology, vaccine and animal health franchises. Premier products in Merck’s portfolio include Keytruda, Gardasil, Winrevair and Bravecto. Outsized contributor Keytruda is an immuno-oncology drug that treats several cancers and tumors. Keytruda is an astounding clinical and commercial success that is on track to become one of the best-selling prescription drugs to date. Investor angst surrounding Keytruda’s pending U.S. patent expiration in 2028 presented a chance to buy shares at a discounted valuation. We believe opportunities to extend Keytruda’s duration through life cycle management are underappreciated. More importantly, discounted cash flows from products already on market cover today’s entire stock price, meaning there is minimal value ascribed to a promising pipeline with strong sales potential. We believe Merck is led by a capable management team that looks to reinvest these cash flows in an accretive manner.”
Overall, Merck & Co Inc. (NYSE:MRK) ranks 7th on our list of the most profitable value stocks to buy now. While we acknowledge the growth potential of MRK as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
