Merck: All-Weather Choice

04/22/2016 8:00 am EST


Richard Stavros

Analyst, Global Income Edge, Utility Forecaster and Personal Finance

I’m not forecasting an imminent financial tsunami, but the recent waves of volatility should be seen as a warning to focus on income safety and ultra-conservative investments. As such, I am focusing on stocks that should weather any volatility, explains Richard Stavros, editor of Global Income Edge.

We created a five-point liquidity ranking for our Conservative Portfolio to help identify firms that can withstand a protracted decline in the market while continuing to deliver dividends.

The #1 firm in our liquidity ranking also happens to be our favorite buy in our Conservative Portfolio: pharmaceuticals giant Merck (MRK).

With a pipeline of 38 drugs in late-stage development, Merck strikes us as undervalued relative to its peers.

In early February, the company reported earnings per share up 7% from the year-earlier quarter and higher than the 91 cents Wall Street analysts expected.

Merck has predicted earnings for 2016, excluding items, would come in at $3.60 to $3.75 per share, and full-year sales of $38.7 billion to $40.2 billion, which reflect an expectation the firm will grow EPS in the mid-to-high single digits, excluding the impact of exchange rates.

This is in contrast to 2015, when Merck had revenues of $39.5 billion and earnings that were hurt by higher-than-expected foreign exchange issues.

Merck expects to hit the high end of its forecast ranges on revenue and EPS growth this year as revenues from new product launches will more than offset increased competition from generic drugs.

Its new product portfolio is where shareholders will find future gains. For example, work on the Ebola virus is representative of Merck’s renewed focus on unmet medical needs.

That’s not a novel approach, but is the result of the early 2000s when major pharmaceutical companies competed head-to-head to treat the same basic diseases. With a 3.39% yield, MRK is a buy up to $65.

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By Richard Stavros, Editor of Global Income Edge

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