A Love Affair with Merck

With shares of Merck & Co. (NYSE:MRK) trading at around $41.97, is MRK an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Medicine_Drugs.svgAre you feeling down? Are you lonely? If you’re in a relationship, does your spouse stress you out at times? The latter question is a rhetorical one. Whatever your situation might be, wouldn’t it be nice to always have something positive to think about? If you’re in a relationship, then the best part is that you don’t even have to stray. The solution isn’t a person, but a stock. And, yes, owning a great stock is that powerful. It truly puts you in a good mood. The answer is Merck.

Merck is up 1,955 percent all-time, and it currently yields 4.10 percent. That yield is a tremendous selling point. You won’t find many stocks that steadily appreciate while also yielding 4.10 percent. The Beta is only 0.29. Therefore, you’re not going to have to worry about extreme volatility. Also look at Merck’s performance during the financial crisis of 2008/2009. It wasn’t a good performance, but when most stocks fell off a cliff, Merck steadily drifted lower over the course of several months. The point here is that you had plenty of time to exit when it was obvious there was big trouble in the economy. The economy still isn’t on solid ground, but times are better, and Merck’s CEO is optimistic about the future.

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Okay… every CEO is going to be optimistic about the future, but Merck has a solid track record. CEO Kenneth C. Frazier recently stated that the strength of the balance sheet provides opportunity for M&A, and that things are moving in the right direction. He also stated that the animal health business is an excellent complement to the existing business.

All of this optimism has the potential to make you smile on a Monday morning, but let’s make sure we’re not getting ahead of ourselves. Let’s check the numbers.