We recently compiled a list of the 12 Undervalued Wide Moat Stocks to Buy According to Analysts. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other undervalued wide moat stocks.
As per BlackRock, European equity gains have managed to outpace the US to start 2025. Despite this, the asset manager expects the US to reclaim leadership this year as the corporate earnings strength and the AI theme broaden out. The US equities have long exceeded the performance of their global peers. BlackRock expects that this has been made possible because of deeper capital markets and relative deregulation which promote risk-taking. The US can keep its edge, despite the S&P 500 lagging so far this year.
Markets to Broaden Out in 2025, Says BofA
As per Savita Subramanian, head of US Equity and Quantitative Strategy for BofA Global Research, the market has been broadening out. Last year and the year before that, the mega-cap tech companies managed to outperform the rest of the S&P. However, in the current year, broader market trends are visible. As per Subramanian, higher productivity and reshoring of manufacturing to the US are the 2 positive forces that are expected to fuel potential market growth beyond the tech sector.
As per Reuters, the volatility is expected to increase due to tariff announcements, policy changes from President Donald Trump, and job cuts, resulting in uncertainty. Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan, has a year-end forecast for the S&P 500 of 6,500 as his “base case.”
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
BlackRock Remains Overweight on US Stocks
BlackRock expects that mega-cap tech and other AI-linked stocks will keep driving the US equity returns, mainly as and when the AI adoption grows. That being said, there are signs of earnings strength broadening beyond technology. The analysts now anticipate tech to post 18% earnings growth this year in comparison to 11% for the broader index. As per the LSEG data, this is a smaller gap versus 2024.
Overall, strong economic growth, broadening of earnings growth and a quality tilt underpin the firm’s conviction and overweight in US stocks as compared to other regions. The valuations for the big tech are backed by healthy earnings, and less lofty valuations for several other sectors. As per Kristy Akullian, CFA, Head of iShares Investment Strategy, there are tailwinds potentially favoring US equities over the rest of the world, mainly large-cap companies. The relatively easy financial conditions, healthy consumer balance sheets, and the expectations of deregulation and tax cuts continue to support the positive view.
Our Methodology
To list the 12 Undervalued Wide Moat Stocks to Buy According to Analysts, we used a screener and sifted through several media reports to choose companies having an economic moat and that analysts see upside to. Next, we filtered out the ones that trade at a forward P/E of less than ~20.0x. Finally, the stocks are arranged in ascending order of their average upside potential, as of February 28.
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).
A close-up of a person’s hand holding a bottle of pharmaceuticals.
Merck & Co., Inc. (NYSE:MRK)
Average Upside Potential: ~24.6%
Forward P/E as of February 28: ~10.2x
Number of Hedge Fund Holders: 91
Merck & Co., Inc. (NYSE:MRK) operates as a healthcare company. The company has a wide economic moat, which stems from its patents, economies of scale, and a powerful intellectual base. It continues to make investments in expanding KEYTRUDA’s indications, extending its lifecycle and market dominance. Merck & Co., Inc. (NYSE:MRK)’s healthy track record in oncology and a deep pipeline of candidates place it well to maintain a strong market presence.
In a significant development, the company announced that the US FDA has accepted for priority review a new supplemental Biologics License Application (sBLA) seeking approval for KEYTRUDA® (pembrolizumab), Merck & Co., Inc. (NYSE:MRK)’s anti-PD-1 therapy, for the treatment of patients with resectable locally advanced head and neck squamous cell carcinoma (LA-HNSCC) as neoadjuvant treatment, then continued as adjuvant treatment in combination with standard of care radiotherapy with or without cisplatin and then as the single agent. Merck & Co., Inc. (NYSE:MRK)’s 2024 results were aided by demand for its innovative portfolio, which includes KEYTRUDA, which has been benefiting more patients with cancer globally, the successful roll-out of WINREVAIR and healthy performance of its Animal Health business.
Merck & Co., Inc. (NYSE:MRK) continues to progress its pipeline, advance key clinical programs and augment the pipeline via promising business development. Therefore, it expects FY 2025 sales of $64.1 billion to $65.6 billion and non-GAAP gross margin of ~82.5%. GreensKeeper Asset Management, an investment management company, released its Q3 investor letter. Here is what the fund said:
“Merck & Co., Inc. (NYSE:MRK) was our second-largest detractor this quarter, declining -8.3%. MRK’s leading HPV vaccine, GARDASIL 9, faced challenges internationally due to inventory buildup within its Chinese distributor, which is expected to reduce shipments for the remainder of 2024. Despite this short-term impact, the long-term outlook for GARDASIL 9 remains promising. Meanwhile, the company’s $27 billion Keytruda cancer juggernaut continues to grow at a healthy clip, powering earnings growth.”
Overall MRK ranks 4th on our list of the undervalued wide moat stocks to buy according to analysts. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued 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: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
