Merck & Co., a pharmaceutical giant known for its cancer immunotherapy drug Keytruda, has been making waves in the stock market in 2024. The company’s stock has surged by an impressive 16.8% year-to-date, outperforming the Dow Jones Industrial Average. This remarkable performance has been driven by aggressive buying from institutional investors, including billionaire Kenneth Griffin’s Citadel Advisors, which acquired 1.25 million shares of Merck in the second quarter of 2024.
The Dow Jones Industrial Average is a key indicator of the overall health of the U.S. stock market, tracking 30 large publicly owned companies across various sectors. While the index has seen modest gains, Merck has stood out as a standout performer. With the stock on a tear, many investors are wondering whether they should follow the lead of savvy investors like Griffin and jump on the Merck bandwagon.
At the core of Merck’s recent success is Keytruda, the company’s crown jewel driving growth. Keytruda, a blockbuster cancer immunotherapy drug, has established itself as a leader in the immuno-oncology landscape, particularly in the treatment of first-line non-small-cell lung cancer. The drug’s success has translated into outstanding financial metrics for Merck, with analysts projecting a top-line growth of 14.7% for both 2024 and 2025.
Despite its impressive performance, investors should be cautious about Merck’s heavy reliance on Keytruda, as the drug’s U.S. patent is set to expire in 2028. This expiration could pose a significant challenge to Merck’s revenue stream in the long term. Additionally, the company needs to strengthen its late-stage pipeline outside of immuno-oncology to ensure sustainable long-term growth.
Merck’s current valuation, with a forward price-to-earnings ratio of 14.5, suggests that the stock may still be undervalued compared to its peers in the pharmaceutical industry. The company also offers a robust dividend yield of 2.45%, backed by its diversified portfolio of drugs. However, investors should be mindful of the risks associated with Merck’s heavy reliance on Keytruda for growth.
Institutional ownership of Merck stock is high, standing at around 78%, indicating strong confidence from professional money managers. The recent purchase of 1.25 million shares by Kenneth Griffin’s Citadel Advisors further underscores the bullish sentiment surrounding the company. While following institutional investors like Griffin can be a sound strategy, retail investors should exercise caution and conduct their own due diligence before investing in Merck.
In conclusion, Merck’s strong performance in 2024, driven by Keytruda’s success, has attracted the attention of both retail and institutional investors. While the company’s solid dividend yield and growth prospects make it an appealing investment option, potential investors should carefully consider the risks associated with its heavy reliance on Keytruda and the upcoming patent expiration. Ultimately, making an informed decision based on thorough research is crucial when considering an investment in Merck.
