Merck (NYSE:MRK) has consistently delivered impressive financial results, built a robust product portfolio, and demonstrated an unwavering commitment to research and development. Given this, I think Merck could be a good stock to consider here. When we look at the Health Care Select Sector SPDR Fund (NYSEARCA:XLV) relative to the SPDR S&P 500 ETF (NYSEARCA:SPY), it looks like the sector broadly has bottomed as defensive posturing takes place.
This is great for healthcare stocks, but what is the specific appeal with MRK stock?
If I’m right that a credit event is out there and that recession risks remain elevated, Merck’s approach to strategic acquisitions could result in a flurry of new businesses coming under its umbrella. This in turn has potential to drive long-term accelerated growth.
Why MRK Stock Stands Out Now
Merck’s proactive strategies include savvy acquisitions, such as the recent purchase of Prometheus Biosciences for $10.8 billion. This acquisition has bolstered its immunology portfolio and increased its research capabilities. Another notable acquisition is that of Acceleron Pharma, which has boosted Merck’s presence in the expanding cardiovascular disease treatment market.
In addition to acquisitions, Merck has also entered several strategic partnerships. These partnerships, such as the joint venture with Moderna (NASDAQ:MRNA), offer long-term potential for individualized cancer treatment and other innovative therapeutic approaches. I expect more such partnerships and acquisitions will be in Merck’s future.
When we look at Merck relative to the overall healthcare sector, it’s clear that there has been some weakness as of late, but at the same time, it’s still done well since 2022. It seems possible to me longer term that Merck could outpace many other companies in the group.
I also expect there to be more interest in blue-chip stocks that have a history of solid and consistent dividend growth. When we look at Merck over time, we can clearly see a solid uptrend in dividend payouts.
There are risks of course. These include the risk of pipeline failures, lower-than-expected market share for Keytruda and vaccines, and the potential for unfavorable regulations on drug prices. Additionally, Merck’s significant reliance on Keytruda also presents a risk. Should any adverse side effects associated with Keytruda emerge, the demand for the drug could decrease significantly, impacting the company’s financial performance.
The Bottom Line
Regardless, I think healthcare is a place to overweight right now, and MRK stock is a great pick from the pack. Merck presents a compelling investment proposition for those seeking long-term value creation and defensive price movement given a low beta historically.
Despite the looming macroeconomic challenges I expect in the credit markets in the near to intermediate term, the company’s proactive strategies, consistent dividend payouts, and robust pipeline make it a promising candidate for long-term investment. The recent dip in stock prices may not reflect a lasting downturn but could signify an opportunity for investors to take a position in this healthcare titan.
As market volatility continues to rise, I expect healthcare stocks like Merck to outperform, making this a potentially opportune time to invest in MRK stock.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.