We recently published a list of the 11 Best Pharma Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other best pharma stocks to buy according to hedge funds.
Why is China the Talk of the Town in the Pharma Industry?
The US pharmaceutical sector is experiencing a distinct trend never seen before with large American pharma companies continually looking for medicines in China. According to data from DealForma, as reported by CNBC, around 30% of Big Pharma deals with at least $50 million upfront in 2024 included Chinese companies. This was up from 20% the year before and almost 0% only five years prior.
Experts are attributing several reasons to this trend. Some believe that Chinese pharmaceutical companies are attracting attention because of their advanced development capabilities that are producing effective molecules in substantial quantities. These Chinese companies are also in a position to assign a lower price to these medicines compared to the US, and are capable of initiating their testing on human subjects quicker. According to CNBC, buyers have devised a business model allowing them to import medicines through licensing deals. Biotech companies are further pushed into making these deals due to the drying up of venture funding in China.
Although the potential reasons for this trend vary, experts believe this scenario is here to stay. While it is anticipated to affect the US pharmaceutical sector, how these repercussions might materialize is unclear. Some experts believe it could ruin American startups if large pharmaceutical companies stumble upon a promising Chinese drug at a low price; others believe the competition would be fruitful for the industry. CNBC reported that Tim Opler, a managing director in Stifel’s global healthcare group, said the following about the situation:
“It’s kind of a watershed moment where the pharma industry is like, ‘We don’t really need to buy U.S. biotechs necessarily. We will if it makes sense, but we can buy perfectly good biotech assets through licensing deals with Chinese companies.”
How Will the Pharma Industry Perform in 2025?
We talked about the potential performance of the pharma industry in a recently published article on 10 Oversold Pharma Stocks to Buy According to Analysts. Here is an excerpt from the article:
“On February 20, Emily Field, Head of European Pharma Research at Barclays, appeared on CNBC to discuss the dynamics of the pharmaceutical sector, the impact of US tariffs, and the performance of obesity drugs. She believed the industry may not underperform this year, at least in the first half. However, there are still several questions surrounding the performance of obesity drugs, as major players in the domain have exhibited contrasting previous year performance.
Talking about the tariffs, she said that their materialization poses a big open question for the pharmaceutical sector as some companies assemble their products in the US after manufacturing them abroad. Manufacturing costs are thus pretty low for these companies, which is a significant point to consider when determining the impact of tariffs. She believed that absorbing the additional cost of the tariffs would be very manageable for these companies. The market has reached the tail-end of the earnings season, and the situation hasn’t come up much on earnings calls over this quarter.”
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 25 pharma stocks. We then selected the top 11 with the highest number of hedge fund holders as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
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)
Number of Hedge Fund Holders: 91
Merck & Co., Inc. (NYSE:MRK) is a biopharmaceutical company that delivers health solutions to advance the treatment and prevention of diseases in animals and people. Its Pharmaceutical segment offers vaccines and human health pharmaceutical products, which typically consist of therapeutic and preventive agents. Its Animal Health segment develops, discovers, manufactures, and markets a range of vaccines and veterinary pharmaceutical products.
Merck & Co., Inc.’s (NYSE:MRK) pipeline lends it a competitive market advantage, with around 20 potential new growth drivers holding blockbuster potential. Its late-stage pipeline in infectious diseases, oncology, and cardiometabolic further bolsters its future outlook. The company’s strong commercial execution, diversified portfolio, and innovative pipeline lend it resilience against short-term headwinds, positioning it as an attractive investment with a solid long-term growth trajectory.
However, the company is experiencing some headwinds, negatively impacting its revenue outlook. For instance, it has temporarily stopped the shipments of its HPV vaccine Gardasil to China until mid-2025 due to weak discretionary spending. Despite these short-term challenges, Merck & Co., Inc. (NYSE:MRK) has strong operations, supported by robust demand for its diverse and innovative portfolio. Its Keytruda drug for cancer treatment is performing well, and the launch of Winrevair, a drug that treats pulmonary arterial hypertension (PAH), is also boosting revenue growth for the company.
GreensKeeper Asset Management, an investment management company, released its Q3 2024 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 best pharma stocks to buy according to hedge funds. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
