Here's why Cramer is bullish on Merck:
The company is finally over the patent cliff and on solid ground. "Right now, going forward, of all the big pharma companies Merck has the least exposure to drugs losing patent protection and going generic. That's huge," said Cramer.
Merck has a broad portfolio of products. "That includes a decent-sized animal health business that they could spin-off," Cramer said. "They also have a big and rapidly growing diabetes business and a vaccine division that's also growing fast."
Merck has an incredibly deep pipeline. "Merck has 35 drug candidates in phase 2 or phase 3 development—that's the second most of any pharmaceutical company out there," Cramer said. "Within their late-stage pipeline, the company has 16 phase 3 programs, the last phase before a drug can come up for FDA approval. And of those 16, there are five drugs that could be approved this year."
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What's the bottom line?
As drugs such as Merck's new ragweed allergy medication or its ovarian cancer drug get FDA approval, Cramer thinks Merck will come back into favor with the Street – not only will investors see new profit potential but they'll also be drawn by the 3.75% yield.
And as that happens, Cramer anticipates something called a reversion to the mean trade. That is, Cramer thinks this laggard will play a big game of catch-up as the Street assigns Merck a similar premium to its big pharma brethren.
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