Is Merck A Good Buy At Current Levels?

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MRK: Merck logo
MRK
Merck

Going by trends seen during the 2008 slowdown, Merck (NYSE: MRK) appears to be a good buy at the current levels of under $75, and it could outperform the broader S&P 500 index, when the coronavirus and oil price war crisis winds down. We saw the stock lose 52% of its value in the 2007-08 crisis, but it saw a sharp rebound of 59% by early 2010, which compares with a 51% decline and 48% rebound for the S&P 500 index over the same period.

On Thursday, March 12, the stock markets saw their biggest sell off since 1987’s Black Monday. There were two distinct trends driving the sell-off. Firstly, the increasing number of coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 30% after Saudi Arabia increased production. On Wednesday, WHO declared Covid-19 as a pandemic, resulting in further correction in the markets. Merck stock fell 9% over the last 4 trading sessions, and it is down by a total of 13% since early February, considering the impact that the outbreak and a broader economic slowdown could have on the company’s sales. The supply disruptions for drugs from China is the key cause of concern for Merck in the near term.

Merck has been on a stellar run with its blockbuster drug Keytruda, which garnered $11 billion sales in 2019. The drug has been approved for various cancer indications, including lung, skin, bladder, and renal among others, and it is being tested for more indications, such as breast and colorectal in its late stage pipeline. Merck is poised to see continued strong growth in its oncology portfolio over the next few years, and any decline in stock price could be a good opportunity for investors to buy for growth in the coming years. While the coronavirus outbreak could impact the sales of some of its drugs in China, and supply chain disruptions from China could impact sales in other regions, it is unlikely that the disruptions will stretch to more than a couple of quarters.

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In this analysis, we take a look at how the company’s stock reacted to the economic crisis of 2008 and compare its performance with the S&P 500. View our complete dashboard analysis on 2007-08 vs. 2020 Crisis Comparison: Merck Stock Compared with S&P 500

Merck Stock versus S&P 500 Over 2020 Coronavirus/Oil Price War Crisis

  • Merck’s stock declined by about 3% on Monday, March 9th, and the stock is down by about 13% since February 1, after the WHO declared a global health emergency.
  • The S&P 500 declined by 7.6% on Monday, March 9, and it has fallen by 25% since February 1, after the global health emergency was declared by the WHO.
  • Merck’s stock decline of 13% since February 1 compares with 19% decline for Pfizer over the same period.

Merck versus the S&P 500 During 2007-08 Financial Crisis

  • Merck’s stock declined by about 9% between Monday, March 9th, and Thursday, March 12th, and the stock is down by about 13% since February 1, after the WHO declared a global health emergency.
  • Through the 2007-08 crisis, MRK stock declined by as much as 52% from its approximate pre-crisis peak. This marked an in line decline as seen in the broader S&P, which fell by as much as 51%.
  • The stock saw massive recovery from the lows, rising by over 59% between March 2009 and January 2010. The growth was higher than the S&P, which rose by about 48% over the same period.

Conclusion

  • While Merck’s stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly, as the crisis winds down, and the growth from lower levels could potentially be much faster than the broader S&P.

For more detailed charts and a timeline of the 2007-08 crisis, view our dashboard analysis 2007-08 vs. 2020 Crisis Comparison: Merck Stock Compared with S&P 500.

 

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