We recently published a list of 10 Best Healthcare 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 healthcare stocks to buy according to hedge funds.
Resilience and Growth in the U.S. Healthcare Sector
Investing in healthcare equities is typically seen as protective during difficult economic times. This is because, even in times of financial hardship, people usually do not reduce their usage of prescription drugs or other necessary healthcare services. The Centers for Medicare and Medicaid Services (CMS) estimates that national healthcare expenditures would grow at an average rate of 5.6% between 2027 and 2032, with spending on healthcare expected to reach an estimated $4.8 trillion in 2023.
In America, the healthcare sector is booming. A new analysis showed that the Country’s healthcare spending rose by 7.5% in 2023, outpacing the nominal GDP growth rate of that year. A significant portion of the population, approximately 93.1% of Americans, had health insurance last year, which helped to drive up healthcare spending. The US government’s predicted 5.6% annual growth in healthcare spending between 2023 and 2032 is expected to surpass the 4.3% growth rate of the GDP.
Navigating Challenges and Opportunities in the Global Healthcare Market
The global healthcare industry is expanding, with McKinsey predicting profits to grow from $583 billion in 2022 to over $800 billion by 2027, at a 7% CAGR. Despite challenges in 2023 from labor shortages and inflation, 2024 is expected to recover, creating an attractive investment opportunity. AI investments in healthcare have surged, with $2.8 billion already invested in 2024 and expectations of over $11 billion by year-end. Deloitte’s 2024 outlook highlights high investor confidence, with AI poised to save $360 billion in U.S. healthcare over the next five years through advancements in patient care, diagnosis, and administration.
In 2023, the healthcare sector faced challenges as investors adjusted for higher interest rates, causing it to lag behind other sectors. However, GLP-1 drugs for weight loss significantly boosted some health companies’ income statements. The sector saw mixed performance, with some companies struggling due to tough comparisons after the COVID-19 vaccine and therapeutic revenues exceeded $100 billion in 2022. Rising interest rates also pressured biotechnology, and providers faced lingering COVID-19 impacts, although distributors improved with better fundamentals and opioid litigation resolutions. However, as fed’s easing of rate policy, with the last cut being that of 50 basis points, the healthcare market is expected to boost.
Our Methodology
For our methodology, we have ranked the best healthcare stocks to buy according to hedge funds based on their total number of hedge fund holders as of Q2 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)
Number of Hedge Fund Holders: 96
Merck & Co., (NYSE:MRK) often simply referred to as Merck, is a global pharmaceutical giant that develops, manufactures, and sells prescription medicines, vaccines, and animal health products. At its core, Merck is in the business of improving human and animal health through scientific innovation.
A major catalyst for Merck & Co., (NYSE:MRK) is its cancer drug Keytruda. This immunotherapy treatment continues to show strong growth and expand into new indications. In Q1 2024, Keytruda sales grew 20% year-over-year to $6.9 billion, demonstrating its ongoing potential. The recent FDA approval of WINREVAIR for pulmonary arterial hypertension also represents a new growth driver in the cardiometabolic space.
Merck & Co., (NYSE:MRK)’s new pneumococcal vaccine for adults received FDA approval, marking a key breakthrough. The company also acquired EyeBio to develop retinal treatments and expanded its Animal Health segment by acquiring Elanco’s aqua business. In Q2 2024, Merck’s Human Health grew 11%, Animal Health rose 6%, and its cancer drug saw a 21% sales boost, reaching $7.3 billion. Additionally, its new pulmonary arterial hypertension vaccine, launched in March, reported $70 million in sales.
As of Q2 2024, around 96 hedge fund holders held stakes in the stock from among those we tracked, with Fisher Asset Management being the largest stakeholder from these with position worth $1.77 billion. Analysts have an optimistic 12-month price projection of $140, which represents a 21% increase from the current prices for MRK.
Regarding Merck & Co., Inc. (NYSE:MRK), Baron Funds’ Baron Health Care Fund made the following statement in its investor letter for the first quarter of 2024, explaining why they think the company outperformed in Q1:
“Global pharmaceutical company Merck & Co., Inc. (NYSE:MRK), Inc. contributed to 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 4th among the best healthcare 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 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.