Merck has three drugs currently under priority FDA review, one of them a Covid-19 drug:
Molnupiravir, an antiviral for Covid-19 which has received a positive opinion from the advisory board and which Merck's CEO says should work against any variant
Vaxneuvance, a pneumococcal vaccine
Lynparza, a breast cancer drug
Merck also continues to make strong headway with Keytruda, an immunotherapy, which recently picked up another approval in Japan.
All of this means that Merck has a lot of headline potential in coming weeks, especially at a time when a new Covid-19 variant is spreading across the world. There's quite a bit of options activity in Merck today as traders place bets ahead of the news.
Technicals and Sentiment
Merck is currently near support from a long-term trend line and from the 200-day EMA. It has 26% upside to the average analyst price target and a bullish put/call ratio of .43. It has an average analyst rating of 9.3/10, which is very high. It gets an above average ESG score of 2.25/3.
Value
S&P Global gives Merck's fundamentals an average score of 90/100. IIt's currently trading -1.4 standard deviations below where it usually trades in relation to its major moving averages. Forward dividend yield is about 3.7%, forward P/E just over 11, forward P/S about 3.4. The price to free cash flow ratio is fairly high, at over 20, but that has to be interpreted in light of the other multiples. estimate that Merck has about 18% upside to its average price multiple of the last 3 years. Its earnings outlook is highly positive; I score its growth forecast a 5/6.
Comment
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MRK got a nice bounce this week from the 200-week EMA. Here is a good place to take some initial profit, I think. Potentially we could see $77 per share in the next few days, but any additional upward movement will likely be slower from here.
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Went ahead and closed out my MRK position. I think there are more compelling opportunities.
"Molnupiravir, an antiviral for Covid-19 which has received a positive opinion from the advisory board and which Merck's CEO says should work against any variant"
Hmm. The advisory board held their noses and voted 13 to 10 in favor. Barely positive. And they had revised their efficacy headline number from 50% to 30%. The drug can help, but "should work against any variant" is a stretch. And the Upcoming Pfizer drug may be much better. Pfizer has completely outperformed Merck in the Covid-19 arena, vaccines and drugs.
As for vaxneuvance, it is better than Pfizer's old one pneumonia, but that is NOT the right comparison. Pfizer's old one is better than Merck's old one. Pfizer's new one is better than Merck's new vaxneuvance.
None of this really matters. Merck is reliant on oncology, and if Medicare negotiates in that space...that will hurt. All that said, Merck under 74 may be worth a shot......
ChristopherCarrollSmith
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@bjorn2z, thanks for commenting; all well worth taking into account.
Razor1211
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What option call would you consider (strike/date) ?
ChristopherCarrollSmith
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@Razor1211, personally I'm only playing shares, but I think 75s & 76s with expiry on or before 12/17 is what I'd do if I were going to play options on this.
Timac22
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Like always a nice quality analysis. thanks!
Mihai_Iacob
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wonderful work! thanks for sharing this
bjorn2z
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"Went ahead and closed out my MRK position. I think there are more compelling opportunities. " Good idea closing out MRK. With a gain. Please share the more compelling ideas. Thanks.
ChristopherCarrollSmith
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@bjorn2z, may write one or two up later, but am fairly pressed for time with end-of-year deadlines, so I'll just drop a couple here and you can do your own DD:
I believe the lows may be in for China and Hong Kong stocks. China central bank has made some small cuts to the policy rate, and China credit impulse looks like it has bottomed. While developed markets like the US are only just beginning their fiscal tightening cycle, emerging markets are way ahead of them in that cycle. I believe fiscal tightening is mostly already priced in for EM. See the chart in this tweet: twitter.com/Theimmigrant84/status/1472752495072104450
In addition to FLCH and FLHK, I have also been buying FLLA. (Markets didn't like Gabriel Boric's election victory in Chile yesterday, but I think he may pleasantly surprise. He's leftist, but doesn't seem inclined to authoritarianism.)
One of my largest positions in a single name is Citigroup. Bond rates are finally rallying, which should be good for financials. Citigroup is beaten-down and near key support, with good fundamentals.
Hmm. The advisory board held their noses and voted 13 to 10 in favor. Barely positive. And they had revised their efficacy headline number from 50% to 30%. The drug can help, but "should work against any variant" is a stretch. And the Upcoming Pfizer drug may be much better. Pfizer has completely outperformed Merck in the Covid-19 arena, vaccines and drugs.
As for vaxneuvance, it is better than Pfizer's old one pneumonia, but that is NOT the right comparison. Pfizer's old one is better than Merck's old one. Pfizer's new one is better than Merck's new vaxneuvance.
None of this really matters. Merck is reliant on oncology, and if Medicare negotiates in that space...that will hurt. All that said, Merck under 74 may be worth a shot......