Merck Offers Strong Yields

Brittney Barrett |

The on-going volatility in the market, the result of continued concerns over global economic slowing has driven many investors out of biotech. With a built-in risk factor, even the best biotechs appear dangerous amidst the massive swings. Their fear has manifested in an exit from the sector more dramatic than it perhaps deserves. Some pharmaceutical companies and biotechs are looking undervalued considering their pipelines and dividends. Merck (MRK) is an excellent example of this sort of company.

Major dividends are not always associated with biotechs, but after three quarters of growth, Merck investors are due for a pay back. Analysts are predicting as hefty dividend yield of 4.6 percent. In spite of this, and the company’s strong performance this year Merck shares of which have fallen around 12 percent.

Among the reasons for Merck’s losses, including a general distaste for the sector right now, is fear that the company’s pipeline is disintegrating. There are several arguments against this; however. A Barron’s article published earlier this week points out the company’s blockbuster patents for arthritis and diabetes are still in effect and will continue to be for several years. Additionally, Merck has an osteoporosis drug in development and as of this morning had a marketing application approved for their experimental cancer drug with Ariad, Ridaforolimus.

Much of the anxiety surrounding the pipeline is focused on the company’s asthma medicine Singulair. Singulair will be expired as of 2012, but with several strong possibilities in the works it may not have too much of an impact on Merck’s bottom line. Beyond the new drug possibilities, the company has effectively begun to cut costs following a massive merger with Schering-Plough, which will help compensate for any losses from Singulair’s generic imitations.

These factors, alongside the fact that the stock is priced with a Forward P/E of only 8.1 makes Merck a surprisingly safe call among a notoriously dangerous sector.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
MBWM Mercantile Bank Corporation 32.56 -0.34 -1.03 25,310
MRK Merck & Company Inc. (new) 61.13 0.37 0.61 7,993,092

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