We came across a bullish thesis on Merck & Co., Inc. (MRK) on Disruptive analytics’ Substack by Magnus Ofstad. In this article, we will summarize the bulls’ thesis on MRK. Merck & Co., Inc. (MRK)’s share was trading at $97.92 as of Jan 17th. MRK’s trailing and forward P/E were 20.49 and 10.15 respectively according to Yahoo Finance.
Jarun Ontakrai/Shutterstock.com
Pharmaceutical stocks, particularly in 2024, have been the subject of political scrutiny due to their high drug prices, but the passage of the Inflation Reduction Act has prompted a shift in how companies approach pricing and drug development. Rather than relying on price hikes, pharmaceutical companies are now focusing more on creating innovative drugs that are less vulnerable to price negotiations, presenting an opportunity for investors. Over the past few years, many pharmaceutical companies have strategically diversified their pipelines, often going unnoticed by the market, creating an arbitrage opportunity for investors looking to capitalize on undervalued stocks.
One such company making strides in pipeline diversification is Merck (MRK). At the start of 2024, Merck projected an additional $35 billion in revenue from its new drug portfolio, a number that has since increased to $50 billion. This growth is largely driven by a significant expansion in its clinical trials, with 26 ongoing phase III trials, up from just nine in 2021. Several of these trials have the potential to produce blockbuster drugs, including therapies targeting HIV. Notably, Merck has partnered with Gilead Sciences to develop a combination therapy that could revolutionize HIV treatment. Their new drug, Islatravir, works by blocking the virus’s ability to replicate, while Gilead’s Lenacapavir targets the virus’s protective shell, preventing it from infecting new cells. This dual approach effectively reduces viral load in infected patients and helps prevent new infections. The collaboration has the potential to generate approximately $5 billion in revenue for Merck.
Despite these promising developments, the market has yet to fully price in the value of Merck’s expanding pipeline. Investors have an opportunity to take advantage of this undervaluation, as the company’s diversified portfolio is poised to generate substantial future revenue. With several high-potential therapies under development, Merck’s strategic investments in its pipeline position it for significant growth, making it an attractive investment opportunity in the pharmaceutical sector.
Merck & Co., Inc. (MRK) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 86 hedge fund portfolios held MRK at the end of the third quarter which was 96 in the previous quarter. While we acknowledge the risk and potential of MRK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher 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.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.