We recently published a list of the 13 Most Undervalued Blue Chip 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 other most undervalued blue chip stocks to buy according to analysts.
“Now is the Time to Revisit Portfolios”
The Fed went through with a 50 basis point cut and as things have started to get clear, investors must give their portfolio another look. On September 20, Matt Stucky, Northwestern Mutual Wealth Management’s chief equities portfolio manager, appeared in an interview on Yahoo Finance to discuss why and how investors must revisit their portfolios.
He suggested that now is the perfect time for investors to sit down and reassess their investments with the help of advisors. Stucky highlights that there is currently $6.3 trillion sitting in money market funds in the asset class, which may not be as attractive after the 50 basis point cut went through. He urged investors to consider a rather diversified portfolio and suggested that sitting on cash alone is risky.
He reiterated that while investors do not need to alter their long-term strategic goals, the ones with idle cash must try to allocate or deploy that money in other investment classes. According to Stucky, garnering a solid yield or return on investment does not come without risk and investors must understand that with the current Fed decision on board, it is impossible to get that kind of yield from cash alone.
What Does the Cut Signal?
On September 19, Dennis Lockhart, Former president of the Federal Reserve Bank of Atlanta, appeared in an interview on Yahoo Finance to discuss the aftermath of the rate cut. According to Lockhart, the rate cut was perfectly balanced and rather optimistic in nature.
He believes that the Fed’s decision was not reactionary to anything going on in the market or the economy. The Fed is particularly confident about the inflation rate, the labor market, and the soft landing of the economy.
Lockhart suggested that the Fed will reroute and remain flexible based on how the economy is performing from meeting to meeting. According to him, the Fed will aim to maintain flexibility and the 50 basis point cut was more like a compensation to what should have happened in July.
Our Methodology
To come up with the 13 most undervalued blue chip stocks to buy according to analysts we examined multiple similar rankings, our own rankings, and ETFs to come up with the best blue chip stocks. We then chose stocks with a forward P/E ratio that was less than the S&P 500’s (22.68, as of September 22). Finally, we ranked the shortlisted stocks in ascending order of the analyst upside potential, as of September 22, 2024.
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)
Forward P/E, as of September 22: 14.4
Analyst Upside Potential, as of September 22: 20%
Number of Hedge Fund Holders: 96
Merck & Co., Inc. (NYSE:MRK) ranks sixth on our list of the most undervalued blue chip stocks to buy according to analysts. Merck & Co., Inc. (NYSE:MRK), a pharmaceutical giant in the United States, specializes in the production of vaccines and the provision of hospital care services.
The company has over 52 drugs in rotation in the United States reaching over 500 million people in 2023 alone. The company’s leading cancer drug, which received approval in 2014, brought in $26.3 billion in sales in 2023. Coming to Q2 2024, the star drug logged $7.3 billion in sales, growing 16% year-over-year.
The company is not just a leading drug provider, but it is also strongly inclined to expand. Recently, the company closed the acquisition of EyeBio, expanding its presence in the ophthalmology industry. The acquisition will help the company invent a treatment for retinal conditions. Its Animal Health segment also closed the acquisition of Elanco’s aqua business, presenting Merck & Co., Inc. (NYSE:MRK) as a leader in the animal health business.
Merck & Co., Inc.’s (NYSE:MRK) commitment to innovation makes it a dominant player in the industry, given that it spent $30.5 billion in research and development expenses in 2023. In addition to that, its large infrastructure allows Merck to make drugs and vaccines at a lower cost compared to smaller companies, giving it a solid competitive edge.
Analysts are bullish on MRK and their 12-month median price target of $140 points to a 20% upside from current levels. In Q2 2024, there were 96 hedge funds that held positions in the stock with total stakes amounting to $7.76 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $1.77 billion.
Baron Funds’ Baron Health Care Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its first quarter 2024 investor letter:
“Global pharmaceutical company Merck & Co., Inc. (NYSE:MRK), Inc. contributed on the continued growth of Keytruda, the company’s key asset and the leading immuno-oncology agent used to treat a variety of cancers. The FDA’s late March approval of pulmonary arterial hypertension drug sotatercept, also drove share gains. We retain conviction as Merck has started to transition from prioritizing its Keytruda franchise to building a more diversified business, with a focus on the Gardasil vaccine, pneumococcal vaccine development, and cardiovascular drug development, well in advance of the scheduled expiration of patent protection/exclusivity rights.”
Overall, MRK ranks 6th on our list of most undervalued blue chip stocks to buy according to analysts. 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.
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Disclosure: None. This article is originally published at Insider Monkey.