Merck: Plenty of potential

The pharmaceutical giant Merck & Co. (NYSE: MRK) hasn’t performed well over the past year, but that poor showing means its stock has remained at relatively attractive levels. The company’s forward-looking price-toearnings (P/E) ratio was recently around 12, compared with a forward P/E of about 22 for the S&P 500. The low price has also pushed up its dividend yield, recently to a solid 3.4%.

The COVID-19 pandemic and the ensuing stay-athome orders led to reduced access to health care products such as vaccines and medicines, which didn’t help Merck’s business. But there are excellent reasons to think its performance will improve as the world shifts back.

Arguably the most important reason is the company’s Keytruda drug, approved to treat various types of cancer. In 2020, Merck’s sales were up a meager 2% year over year to $48 billion, but Keytruda sales jumped by 30% year over year to $14.4 billion. And the cancer medicine still has a bright future; it’s currently undergoing multiple Phase 3 clinical trials, and it stands a decent chance of being approved to treat additional conditions within a few years.

Merck’s pipeline features dozens of drugs in development. Its animal health business is also performing well. This is a solid health care stock, whose shares may not remain on the cheap side for much longer.