We recently compiled a list of the 7 Blue Chip Stocks with Low PE Ratios. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other blue chip stocks with low PE ratios.
In the current financial landscape, characterized by shifting market sentiments and evolving economic indicators, the spotlight on blue-chip stocks with low price-to-earnings (P/E) ratios has intensified. As investors seek stable and potentially undervalued options, understanding the broader context of interest rate movements, inflation trends, and market performances becomes crucial.
Recent data indicates that bond traders are increasingly skeptical about the Federal Reserve’s likelihood of implementing further rate cuts this year. Current market expectations reflect only a 20% chance that rates will remain unchanged during either the November or December meetings. Just last week, following an unexpectedly strong jobs report, traders had anticipated over 50 basis points in cuts by year-end. This significant shift underscores a growing belief that robust U.S. economic data is diminishing the probability of consecutive cuts, which has implications for investment strategies across the board.
As a result of these evolving expectations, the dollar is currently on track for its second consecutive weekly gain, bolstered by a 0.5% increase this week alone. The Bloomberg Dollar Spot Index has gained 1.7% in October, propelled by resilient economic indicators that suggest a more cautious approach from the Fed. In contrast to other central banks that may pursue additional monetary easing, the Federal Reserve appears to be recalibrating its policy stance from a position of economic strength. This backdrop adds an additional layer of complexity for investors assessing their portfolios, particularly those interested in blue-chip equities.
Furthermore, the recent performance of the stock market has been notable, with major indices reaching new all-time highs as earnings season kicks off. A wide range of sectors within the market has shown improvement, with the S&P 500 extending its winning streak into a fifth consecutive week, the longest since May. The KBW Bank Index also saw significant gains, surging by 3% and reaching its highest level since April 2022. This upward momentum can be attributed to several financial institutions posting better-than-expected earnings, signaling a recovery that is gaining traction across various sectors.
Interestingly, inflation trends are also contributing to the current economic narrative. Recent reports indicate that U.S. producer prices remained unchanged in September, reflecting a more favorable inflation outlook. Although year-on-year increases in the producer price index (PPI) showed a modest rise of 1.8%, the smallest gain in seven months, market analysts predict a potential 25 basis points reduction in interest rates next month. Despite the uptick in inflationary pressures in certain sectors, most economists do not view these trends as signs of a broader resurgence in price pressures, suggesting that the overall economic environment remains stable.
As we navigate through this analysis, it will be vital to consider the backdrop of current economic conditions, including interest rate expectations and inflationary trends, to better understand the investment landscape and identify potential opportunities. With that, let us delve into the profiles of these promising blue-chip stocks that align with the search for stable investments amidst a fluctuating market.
Our Methodology
For this article, we use stock screeners to identify nearly 12 stocks above $200 billion market cap and a forward Price to Earnings (P/E) ratio of less than 15 as of October 11, 2024. Next, we narrowed our list to 7 stocks that were most widely held by institutional investors. The hedge fund sentiment was taken from Insider Monkey’s Q2 database of 912 hedge funds. The seven blue chip stocks are listed in descending order of their forward price to earnings ratio.
At Insider Monkey we are obsessed with 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)
Forward Price to Earnings (P/E) ratio: 11.19
Number of Hedge Fund Holders: 96
Merck & Co., Inc. (NYSE:MRK) operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health. Merck & Co., Inc. (NYSE:MRK) is a strong candidate for inclusion in blue-chip stocks with low price-to-earnings (PE) ratios, sporting a forward PE ratio of 11.19 as of October 11, 2024. This pharmaceutical giant has consistently demonstrated robust financial performance and innovation, as reflected in its Q2 2024 earnings report, where the company exceeded earnings expectations with an EPS of $2.28, surpassing the anticipated $2.17.
One of Merck & Co., Inc. (NYSE:MRK) standout strengths lies in its diversified portfolio, including a significant presence in oncology, vaccines, and animal health. In Q2, the company generated total revenues of $16.1 billion, a 7% year-over-year increase, with its human health segment seeing 11% growth. This performance was primarily driven by the continued success of its blockbuster cancer drug, KEYTRUDA, which saw sales rise by 21% to $7.3 billion. KEYTRUDA’s growth was fueled by increased adoption in both earlier-stage and metastatic cancer treatments, solidifying Merck’s leadership in the oncology space.
In addition to its oncology portfolio, Merck’s vaccine division continues to perform well, with GARDASIL generating $2.5 billion in sales during the quarter. The company’s recent FDA approval for CAPVAXIVE, a pneumococcal vaccine designed for adults, further strengthens its position in the vaccine market and opens up new revenue streams. Merck & Co., Inc. (NYSE:MRK) recent acquisition of EyeBio also positions it as a future leader in ophthalmology, targeting retinal diseases—an area of unmet medical need.
The company’s animal health segment showed a solid performance with a 6% increase in sales, underpinned by growth in livestock products. Merck & Co., Inc. (NYSE:MRK) recent acquisition of Elanco’s aqua business has expanded its footprint in this sector.
From a financial standpoint, Merck & Co., Inc. (NYSE:MRK) gross margin improved to 80.9%, reflecting strong operational efficiency and favorable product mix. The company raised its full-year revenue guidance to a range of $63.4 to $64.4 billion, signaling continued growth potential. With a strong pipeline, disciplined investments, and robust earnings growth, Merck & Co., Inc. (NYSE:MRK) remains an attractive investment option for those seeking blue-chip stocks with low PE ratios.
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 3rd on our list of the blue chip stocks with low PE ratios. While we acknowledge the 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.
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Disclosure: None. This article is originally published at Insider Monkey.