We recently published a list of 10 Worst Performing Dow Stocks Year-to-Date. In this article, we are going to take a look at where Merck (NYSE:MRK) stands against other worst performing Dow stocks year-to-date.
After the disastrous performance of 2022, the market has recovered better than expected and is on a growth trajectory. According to BlackRock’s Q4 2024 Equity Market Outlook, despite concerns about the economy, fundamentals have kept stocks resilient. Opportunities are seen in large-cap stocks, which may outperform both mega and small caps.
Volatility is viewed as normal and can create buying opportunities, especially when driven by market sentiment rather than fundamentals. Historically, market corrections of 10% or more are common but long-term investors have still enjoyed solid returns.
The report states that elections and Fed rate cuts may also impact the market, with rate cuts typically benefiting large-cap and high-quality stocks. Healthcare and consumer staples sectors have traditionally performed well after rate cuts, while cyclical sectors may improve as the economy recovers.
Finally, it mentioned that technology, which is usually a laggard in rate-cutting cycles, looks well-positioned this time due to innovations like AI. Long-term patience is essential in navigating volatility, as the market has proven resilient over decades through various crises.
READ ALSO: 8 Best Communication Stocks To Buy According to Analysts and 10 Worst Performing Blue Chip Stocks in 2024
Evaluating Volatility and Valuations in Today’s Stock Market
In a CNBC interview, chief strategist and economist of Solus Alternative Asset, Dan Greenhaus discussed stock market volatility, with mega-cap earnings and the upcoming election contributing to potential fluctuations. He mentioned that the market is already experiencing some volatility, as reflected in the elevated VIX. Despite this, he highlighted that the economy is still growing, albeit at a slower pace, and earnings are rising, which is creating a generally favorable environment for equities.
Greenhaus also addressed concerns about market valuations and noted that while current multiples are high historically, determining what constitutes “rich” valuation levels can be difficult without hindsight.
Lastly, Greenhaus referenced a trading strategy of “buying high and selling higher,” suggesting that investors should remain engaged in the market even during record highs.
Our Methodology
For this article, we checked the year-to-date performance of all the Dow components and selected 10 stocks out of 30, that had the worst share price performance on a year-to-date basis on October 21. We listed the stocks in descending order of their share price performance. We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s Q2 database of 912 elite hedge funds.
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
Share Price Performance Year-to-Date: -6.09%
Merck & Co., Inc. (NYSE:MRK) is an international healthcare company that offers advanced health solutions through prescription drugs, vaccines, biological therapies, and animal health products. The company emphasizes research and development, aiming to address various health conditions, such as cancer, infections, and cardiovascular diseases. It takes the 4th spot on our list of worst performing Dow stocks.
One of the main reasons for Merck’s (NYSE:MRK) declining performance has been concerns about Keytruda’s U.S. patent expiring in 2028, which have led to lower stock prices. Moreover, the company stock was performing relatively well before its Q2 earnings (still slightly below the broader market). The stock declined significantly after it cuts its earnings forecasts for 2024.
While the company posted strong earnings, beating the revenue and EPS estimates, it narrowed its non-GAAP EPS to the range of $7.94 and $8.04, compared to the prior $8.53 to $8.65 per share. Between July 29 and 31, the company stock dropped nearly 11.5%.
However, Merck (NYSE:MRK) is still a strong company and it is strengthening its pipeline significantly. The company’s significant achievements include the successful launch of WINREVAIR, a new treatment for pulmonary arterial hypertension, and the FDA approval of CAPVAXIVE, the first pneumococcal conjugate vaccine specifically for adults.
While the acquisition of EyeBio is one of the reasons for its narrowed earnings forecasts, the impact seems to be a one-time thing according to the company management and improves the company’s ophthalmology portfolio for the future. The company’s management believes that its pipeline is ready for substantial growth, with a potential for launching as many new drugs in the next five years as in the previous decade.
Oakmark Equity and Income Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its Q3 2024 investor letter:
“Merck & Co., Inc. (NYSE:MRK) is a global pharmaceutical firm with leading oncology, vaccine and animal health franchises. Premier products in Merck’s portfolio include Keytruda, Gardasil, Winrevair and Bravecto. Outsized contributor Keytruda is an immuno-oncology drug that treats several cancers and tumors. Keytruda is an astounding clinical and commercial success that is on track to become one of the best-selling prescription drugs to date. Investor angst surrounding Keytruda’s pending U.S. patent expiration in 2028 presented a chance to buy shares at a discounted valuation. We believe opportunities to extend Keytruda’s duration through life cycle management are underappreciated. More importantly, discounted cash flows from products already on market cover today’s entire stock price, meaning there is minimal value ascribed to a promising pipeline with strong sales potential. We believe Merck is led by a capable management team that looks to reinvest these cash flows in an accretive manner.”
Overall, MRK ranks 4th on our list of worst performing Dow stocks year-to-date. 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.