Merck & Co., Inc. Stock Still Holding Its Position As A Big-Pharma Leader

Merck & Co. MRK is the perfect example of a go-to “safe harbor” stock when market conditions turn bearish, as they did last Thursday and early Monday morning.

Although this type of stock typically gets shunned -- relatively speaking -- when the market swings back to the upside, the good news for Merck shareholders is that "relatively shunned" still means the stock is rising in this case.

Merck offers the historical allure of safety so often associated with large-cap pharmaceutical companies.

However, for anyone looking at valuations, it may become hard to rationalize owning the stock on a long-term buy and hold basis.

What The Bulls See...

• A still-reasonable Price-to-Sales ratio of 4.01, and an enterprise value of $181 billion that trumps the company's market capitalization of $172 billion.
• A net profit margin of 12.89 percent and gross operating margins of 22.36 percent.
• A clean balance sheet, including a current ratio of 1.87, a debt to equity ratio of 47.57 percent, huge cash reserves of $13.40 billion, and enormous, consistent levered free cash flow of over $10 billion.
• A stock with three different uptrend lines supporting it.

What The Bears See...

• The company is richly valued on a Price-to-Book basis (3.56).
• Its Price-to-Earnings ratio of over 17 is high when compared with estimated revenue growth of -3 percent and 2.9 percent earnings growth for next year.

The Technical Take

There are no negative technical factors in play for Merck just yet. This crowd, in particular, notes that as long as the stock holds above $58.53, bulls are in full control of the situation.

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If that level breaks down, though, the stock is likely going to test out the first of the three bullish uptrend lines at around $57.65.

That type of downside is nothing that will scare those bullish on Merck, but a break of the uptrend line at $57.65 could lead to a test of the second uptrend line at $52. That -- in theory -- would be more than most Merck shareholders could handle.

Overall…

Strictly from a technical perspective, Merck looks like it needs to be treated as a “buy the dip” candidate as long as $58.53 holds up as support.

Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.