We recently published a list of 10 Most Promising Low-Cost Stocks According to Hedge Funds. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against other most promising low-cost stocks.
Inflation Data Hints at a Lower Than 50 bps Cut
The September Consumer Price Index data showed that consumer prices rose way above expectations. On October 10, Omair Sharif, Inflation Insights president, appeared in an interview on Yahoo Finance to discuss his market thesis amid rising consumer prices.
Sharif highlights that while inflation data is higher than expected housing inflation has started to cool down a bit more. He also adds that food prices have come down significantly ever since the outburst after COVID-19, hinting that there are a lot of positives to extract from the current market situation.
Sharif suggests that the market is not up to a point where the Fed will be worried about the status quo, wiping out any hopes for a 50 basis point cut in November. His market thesis is that a 25 basis point cut in November will be the best course of action.
The Bull Market is Turning Two Years Old
As the Street approaches the second anniversary of the bull market, the market is set up for major changes. On October 11, Matthew Palazzolo, Bernstein Private Wealth Management’s senior investment strategist, appeared in an interview on Yahoo Finance to discuss the market outlook.
Palazzolo suggests that the Fed’s monetary policy is probably the biggest risk to the bull market at the moment. He adds that the Fed will continue to cut rates in 2025. While returns are expected to be modest the scenario is expected to be fairly conducive for equity investors.
He adds that the market is expected to broaden out from the magnificent seven and their valuations will increase relatively slowly. Palazzolo highlights that low-cost names will offer greater opportunity. He also suggests that companies beyond the big seven are more in line with their long-term average.
Our Methodology
To find the most promising low-cost stocks according to hedge funds, we used the Finviz stock screener. We set the Forward P/E under 15 to get a list of cheap stocks with a market capitalization of over $2 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders as of Q2 2024 as a primary metric and their Forward P/E as of October 13, as a secondary metric.
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
Forward P/E Ratio as of October 13, 2024: 13.69
Merck & Co., Inc. (NYSE:MRK) is one of the most promising long-term stocks according to hedge funds. The pharmaceutical company is engaged in the production of vaccines and the provision of hospital care services.
What sets Merck & Co., Inc. (NYSE:MRK) apart is its expansion strategy. Recently, it acquired EyeBio, expanding Merck’s position in the ophthalmology industry. In addition to that, its animal health segment also closed the acquisition of Elanco’s aqua business, presenting it as a crucial stakeholder in the animal health industry. On October 1, Merck & Co., Inc. (NYSE:MRK) acquired CN201 from Curon Biopharmaceutical (Curon), a novel clinical-stage bispecific antibody for the treatment of B-cell diseases.
On September 17, Jacob Sonenshine, Barron’s market reporter, appeared in an interview on Fox Business to share his bullish outlook on Merck & Co., Inc. (NYSE:MRK). Sonenshine shares that he expects the company to see double digital stock price increases in the next five years. He adds that MRK is cheap and has over 20 drugs in its pipeline that are yet to be approved. He expects the majority of them to become blockbuster drugs.
Merck & Co., Inc. (NYSE:MRK) boasts strong fundamentals and is a front-runner in the race to become a leading drug provider. To align with the goal, the company spent over $30.5 billion in research and development in 2023, which is expected to increase with every passing year.
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 3rd on our list of most promising low-cost stocks 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.
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Disclosure: None. This article is originally published at Insider Monkey.