Is Merck & Co., Inc. (MRK) a Strong Buy Right Now?

We recently compiled a list of the 10 Best Healthcare Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other healthcare stocks. You can also check out the 20 Most Valuable Healthcare Companies in the World here.

Healthcare stocks are often considered a defensive investment during times of economic uncertainty. This is because people typically do not cut back on essential healthcare services or prescription drug purchases, even during economic downturns. According to the Centers for Medicare and Medicaid Services (CMS), expenditure on healthcare within the United States reached an estimated $4.8 trillion in 2023 while projections for 2027-32 suggest that national care spending will grow at an average rate of 5.6%.

A report by McKinsey also predicts that the healthcare industry is expected to see significant profit growth, with the overall profit pool reaching $819 billion by 2027, up from $583 billion in 2022. As we progress through 2024, there is a growing sense of optimism surrounding the healthcare sector. BlackRock's 2024 outlook for healthcare suggests that investors can anticipate a "favorable risk-reward environment" in the sector this year. The healthcare sector's underperformance in the previous year has created an appealing entry point for investors seeking to invest in the sector in 2024. There are several key trends behind this favorable climate in 2024 and beyond.

Firstly, the healthcare market is undergoing a patient-centered revolution fueled by technology. Telehealth or telemedicine, a solution driven by the pandemic, is now entering the mainstream due to its convenience and accessibility. The global telemedicine market, valued at $60.15 billion in 2023, is expected to keep growing at a steady pace for the next few years. This trend aligns with a broader shift towards personalized care. Advancements in genomics are paving the way for precision medicine, which is expected to be a $50.2 billion market by 2028. Precision medicine personalizes treatments based on the patient’s genetic makeup, leading to potentially more effective interventions.

The AI revolution is also impacting the healthcare sector. According to a report by Deloitte, in 2019 and 2022, investor confidence in AI for healthcare was high, with around $31.5 billion poured into equity funding. In the US alone, wider adoption could generate annual savings of up to $360 billion, roughly 10% of the country's healthcare spending, within the next five years.

Another key trend is the rise of remote patient monitoring (RPM). This technology allows healthcare providers to collect patients' health data remotely and intervene early if there are any concerning changes. The global RPM market, valued at $71.9 billion in 2023, is expected to observe further growth. Wearable devices and other technologies enabling RPM are likely to see continued adoption through 2028.

Our Methodology

To shortlist the 10 best healthcare stocks to buy according to hedge funds, we conducted an analysis of our database of 919 hedge funds as of Q1 2024. From this dataset, we selected the best healthcare stocks based on the hedge fund sentiment. The top healthcare stocks have been ranked in ascending order of the number of hedge funds holding a stake in them as of the first quarter of the year. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A close-up of a person's hand holding a bottle of pharmaceuticals.

Merck & Co., Inc. (NYSE:MRK)

Number of Hedge Fund Holders: 95

Merck & Co., Inc. (NYSE:MRK) is a major player in the healthcare industry, offering a range of solutions for humans and animals including vaccines, medications, and biological therapies. Founded in 1891, Merck & Co. (NYSE:MRK) has been a leader in the healthcare industry for over a century, with its headquarters located in Rahway, New Jersey.

Merck & Co., Inc.’s (NYSE:MRK) Q1 2024 sales grew 9% year-over-year to $15.8 billion, driven by strong performances in oncology drugs and vaccines. The company also raised its full-year sales forecast to $63.1 - $64.3 billion.

Given its strong financial performance and portfolio expansion through business development and acquisitions such as Harpoon, it is no surprise that the Merck & Co., Inc. (NYSE:MRK) stock has attracted bullish sentiments from analysts. The stock has earned a consensus “Strong Buy” rating. Analysts predict an average price target of $145.08 within the next 12 months, with estimates ranging from $132 to $168. The average price target represents a potential upside of over 11%.

Here's what Carillon Tower Advisers said about Merck & Co., Inc. (NYSE:MRK) in its Q1 2024 investor letter:

“After posting lackluster returns in 2023, Merck & Co., Inc. (NYSE:MRK) got off to a strong start in January by raising the long-term sales forecasts for its oncology and cardiology pipelines and reporting solid fourth-quarter results, coupled with strong financial guidance for 2024. Merck shares also finished the quarter strong after receiving U.S. Food and Drug Administration approval in late March for a new cardiology medicine with the potential to contribute significantly to sales growth over the next several years.”

As of Q1 2024, 95 hedge funds reported owning a stake in Merck & Co., Inc. (NYSE:MRK), making it one of the best healthcare stocks to buy according to hedge funds.

Overall MRK ranks 5th on our list of the best healthcare stocks to buy. You can visit 10 Best Healthcare Stocks to Buy According to Hedge Funds to see the other healthcare stocks that are on hedge funds’ radar. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.