Merck & Co., Inc. (NYSE:MRK) did not finish last week well. Its Q3 earnings, announced last Thursday, did not deliver inspiring results, and as you might expect, Merck stock was punished because of the disappointment.
While earnings came in slightly above expectations, revenue came in 2% lower than for the same quarter a year ago. MRK stock hit its 52-week low on the news.
As I’ve said many times before, this is when contrarian investors need to take a deeper dive and see if a great long-term company like Merck stock has been oversold, or whether it’s being justly punished for its shortcomings.
In my view, the former is true.
Here’s What Merck Stock Has Going for It
MRK certainly didn’t light the world on fire with its quarterly numbers. And yes, it has some big drugs that will fall off the patent cliff in the few years.
Yes, it’s immuno-oncology drug Keytruda also pulled out of Phase 3 lung cancer trials in Europe. And it has some competition with Bristol-Myers Squibb Co’s (NYSE:BMY) competitor Opdivo. But none of this should have punished the stock the way it has.
The immuno-oncology space is a very big deal for big pharma in the coming years. Basically, these are drugs that work with a patient’s immune system to fight cancer.
Right now, they are still relatively experimental, only prescribed for patients that are terminally ill to try to help extend their lives by a matter of weeks or months.
But their potential is enormous. Used in combination with radiation or other chemotherapy or on their own, they allow patients to have a better quality of life while they battle cancer, but eventually home delivery of these medicines will enable them to actually work to cure specific cancers.
Keytruda is showing positive results. The next step is to expand its use to more types of cancers and perhaps a pool of patients that are in earlier stages of the disease.
Bottom Line on MRK Stock
Since all this — the potential market, the drugs’ potential efficacy, etc. — is still unsettled, analysts can’t really value the impact it will have on Merck stock moving forward. But there’s enormous potential.
Speaking of blockbuster drugs, MRK stock doesn’t have one gigantic winner — it has 9 of them. MRK has 9 drugs that all post annual sales of $1 billion or more. And of its drugs coming off patent, there are plenty more coming through the pipeline to make up for the loss.
Much of Merck stock’s 6% loss year-to-date happened last week. And its rock solid 3.4% dividend means the stock is barely underwater for the year. What’s more, there’s far more upside here than downside, which makes now a good time to wade in.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.