We recently compiled a list of the 8 Best US Stocks For Foreign Investors Right Now. In this article, we are going to take a look at where Merck & Co. Inc. (NYSE:MRK) stands against the other US stocks.
Optimism Amid Market Strength
Despite previous recession predictions, the market has shown resilience and continued to rise, largely due to multiple expansions rather than just earnings growth. Current market valuations are trading at approximately 22 times earnings during an easing cycle, raising questions about future earnings growth. There seems to be a disconnect between expectations for significant easing and projected strong earnings growth.
Investors are encouraged to remain vigilant and consider the evolving economic landscape as they navigate potential market shifts. Earlier in October, Jason Trennert, Strategas Research Partners chairman and CEO, joined CNBC to discuss the latest market trends and the state of the economy, highlighting that the bar is high to get bearish now. We covered his opinion in our article about the 8 High Growth High Margin Stocks to Invest In Now in much more detail. Here’s an excerpt from that discussion:
“Despite the challenges of 2022 and early 2023, which made it difficult to envision a market recovery, he noted that the market has defied expectations and continued to rise. Trennert attributed a significant portion of this upward movement to multiple expansions rather than just earnings growth. He marked a pivotal moment in 2023 as the failure of Silicon Valley Bank, which led to increased liquidity in the market and a subsequent rally. He recalled that around eleven months ago, the S&P 500 briefly hit 4,100 when ten-year yields reached 5%, suggesting that market dynamics have shifted considerably since then.
….He expressed skepticism about future earnings growth, as expectations for a 14% increase in S&P earnings next year seem inconsistent with the anticipated six rate cuts from the Fed. He emphasized that if the market is expecting such significant easing while also projecting strong earnings growth, there may be a disconnect.
…Despite these concerns, Trennert acknowledged that it is challenging to adopt a bearish outlook given current market conditions. He noted that ten-year treasury yields above 4.5% typically lead to market indigestion, while yields below this threshold make it hard to remain pessimistic.”
On October 16, J.J. Kinahan, IG North America CEO, joined CNBC’s ‘Squawk Box’ to discuss the latest market trends, highlighting that he has never seen investors this afraid of a market that’s doing so well. J.J. Kinahan noted that the upcoming weeks would be particularly interesting due to the convergence of earnings reports and the impending election, alongside uncertainty surrounding the Fed’s next moves. He remarked on the market’s resilience, highlighting that there have been 46 new highs for the S&P 500 this year, despite a general sentiment of skepticism among investors. He expressed that it is unusual for a market to perform so well while simultaneously being viewed with caution and fear.
Kinahan pointed out that many investors are hesitant, particularly those in their mid-30s and younger, who have not experienced a significant downturn in the market. He explained that this demographic often perceives any market decline as temporary, lasting only a few days. He emphasized the importance of taking risks when young and noted that many younger investors are excited about their opportunities in the current market environment. This positive sentiment is particularly significant given their parents’ experiences during the financial crisis of 2008-2009.
He also speculated that part of the reason for the market’s strong performance might be attributed to older investors who have been burned in previous downturns and are now waiting for a pullback that has yet to materialize. Kinahan suggested that as these investors gradually capitulate, they may start to invest more actively in the market.
Discussing interest rates, Kinahan acknowledged that while the Fed is in a massive easing cycle, there seems to be a disconnect with the bond market recently. He mentioned a study indicating that volatility during election years is not significantly greater than in non-election years. Currently, volatility is relatively low, hovering around a historical average of 20, and only recently rising to this level. He explained that typically, volatility tends to increase after elections, when political changes begin to take effect and policies, are implemented. He anticipated that January would bring more clarity regarding how these changes might impact the markets.
Kinahan’s insights reflect a complex interplay between investor sentiment, market performance, and external economic factors as they navigate through earnings season and an election year. His perspective underscores a cautious optimism about the market’s ability to maintain its upward trajectory despite prevailing uncertainties.
Methodology
To find the best US stocks for foreign investors, we used Insider Monkey’s proprietary database to find US stocks that were the most popular among elite and that analysts were bullish on. We then selected the top 8 stocks with the highest average analysts’ upside potential. The stocks are ranked in ascending order of their average analysts’ upside potential, as of October 16.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a person’s hand holding a bottle of pharmaceuticals.
Merck & Co. Inc. (NYSE:MRK)
Average Upside Potential: 25.53%
Number of Hedge Fund Holders: 96
Merck & Co. Inc. (NYSE:MRK) is a global pharmaceutical company that develops, manufactures, and markets prescription medicines and vaccines. It has a strong focus on research and development, and its products are used to treat a wide range of diseases, including cancer, cardiovascular diseases, infectious diseases, and autoimmune disorders.
Q2 2024 revenue increased by 7.16% year-over-year. The Human Health segment saw 11% growth, Animal Health grew by 6%, and KEYTRUDA sales surged by 21%. Vaccines like GARDASIL and VAXNEUVANCE experienced growth of 4% and 16%, respectively. Merck secured FDA approval and ACIP recommendation for its new pneumococcal conjugate vaccine, CAPVAXIVE, for adults. Additionally, WINREVAIR, a vaccine for adult patients with pulmonary arterial hypertension, was approved and generated over $70 million in sales during the quarter.
The company expanded its presence in animal health by acquiring Elanco’s aqua business and entered the ophthalmology market through the acquisition of EyeBio, aiming to develop treatments for retinal conditions. As October began, it completed the acquisition of CN201, a bispecific antibody for the treatment of B-cell-associated diseases. It’s being investigated in clinical trials for NHL and ALL.
The company’s CAPVAXIVE, a new Pneumococcal 21-valent Conjugate Vaccine, is showing promising results in protecting adults from pneumococcal disease. The vaccine demonstrated strong immune responses and was well-tolerated in clinical trials. It is designed to cover a broader range of pneumococcal serotypes than existing vaccines, providing additional protection for adults at high risk.
It’s poised for continued growth due to its international expansion, diverse drug portfolio, and strong financial results. The acquisition of Harpoon Therapeutics is expected to strengthen its oncology pipeline and create opportunities for new combination therapies. Hence, Merck & Co. Inc. (NYSE:MRK) is rather well-positioned for success.
Oakmark Equity and Income Fund 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 MRK ranks 2nd on our list of the best US stocks for foreign investors right now. While we acknowledge the growth potential of MRK, 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.
