Blue chip, dividend aristocrat, reliable and liquid company, great background — all these words can be used to describe Merck Group. Is the pharmaceutical company really deserving of this hype? Well, its stock has seen gains of about 13% over the last year, with its growth likely to continue, while the S&P 500 Index has watched its value decline nearly 16%.
Several factors are at play here, one of which comes in the form of a secret weapon called Keytruda. It’s a medicine used in cancer immunotherapy to treat various types of oncological diseases, and in 2022 the medicine saw its sales whirl upward, with demand only continuing to grow. More than 30% of all company sales for the first half of 2022 are attributed to Keytruda, representing over $10 billion in revenue.
The second reason is basically Merck itself. It’s one of the biggest pharmaceutical companies in the world, having been around for centuries since the original company was founded by (and named after) a family who set up Merck Group in Germany in 1668. Over the centuries, the company has created numerous products for different purposes, including medicines, vaccines, biological therapies, animal health, and consumer care products.
So, Merck takes a diversified approach and has created a firmly established and highly reputable brand. That’s one of the reasons why the company regularly pays out dividends – now Merck’s div is 2.96%, which is rather impressive compared to the S&P 500 stocks' average dividend yield of 1.82%.
Additionally, future cancer treatment developments might also benefit the business. In the meantime, the company’s price-earnings ratio indicator looks pretty promising at about 16, meaning the stock still has growth potential.
Despite all these positive factors, there’s one word that has the potential to cross them out: Crisis. A word that everyone is getting pretty used to these days. Things started to go downhill with the Covid-19 pandemic, followed by the enormous military confrontation in Eastern Europe, which led to record inflation levels and an energy crunch around the globe. What a time to be alive, eh? The price of everything has gone up since these events, and in an attempt to hold the line, central banks have aggressively hiked interest rates. They tried their best, and you know the rest.
The S&P 500 demonstrates the impacts of these events reasonably well, seeing losses of around 17% in the last year. Not only that, but many experts think that the American market is still overrated and that investors should expect further deterioration. If a substantial decline does occur, it won't just be specific shares – all companies listed on the index will feel the heat – Merck included.
However, strong brand awareness allows investors to consider the company a defensive asset. Not only that, but many analysts are sure that Merck stock will perform better than just defensively, with the average forecast for the next year standing at +7%.
Ultimately, there are two key points to keep in mind. The first thing that makes Merck the star of the show is its high dividends. And the second is that you should always carry out your own research before investing in any asset – even ones like Merck.
