Motley Fool: Merck – Plenty of potential

The pharmaceutical giant Merck & Co. (NYSE: MRK) hasn’t performed well over the past year, but that poor showing means its stock has remained at relatively attractive levels. The company’s forward-looking price-to-earnings (P/E) ratio was recently about 12, compared with a forward P/E of about 22 for the S&P 500. The low price has also pushed up its dividend yield, recently to a solid 3.4%.

The COVID-19 pandemic and the ensuing stay-home orders led to reduced access to health care products such as vaccines and medicines, which didn’t help Merck’s business. But there are excellent reasons to think its performance will improve as the world shifts back.

Arguably the most important reason is the company’s Keytruda drug, approved to treat various types of cancer. In 2020, Merck’s sales were up a meager 2% year over year to $48 billion, but Keytruda sales jumped by 30% year over year to $14.4 billion. The cancer medicine still has a bright future; it’s undergoing multiple Phase 3 clinical trials, and it stands a decent chance of being approved to treat additional conditions within a few years.

Merck’s pipeline features dozens of drugs in development. Its animal health business is also performing well. This is a solid health care stock, whose shares may not remain on the cheap side for much longer.

Ask the Fool

Q: How many women are CEOs of big companies? – R.W., Rutland, Vermont

A: The folks at Catalyst (a nonprofit advancing women in the workplace) maintain a list of women CEOs of the S&P 500. As of April 1, there are 30 out of the 500 – or 6%. They are Mary Barra, General Motors; Corie Barry, Best Buy; Gail Boudreaux, Anthem; Rosalind Brewer, Walgreens Boots Alliance; Michele Buck, The Hershey Company; Debra Cafaro, Ventas; Safra Catz, Oracle; Joanne Crevoiserat, Tapestry; Mary Dillon, Ulta Beauty; Jane Fraser, Citigroup; Adena Friedman, Nasdaq; Lynn Good, Duke Energy; Tricia Griffith, Progressive; Vicki Hollub, Occidental Petroleum; Jennifer Johnson, Franklin Resources; Reshma Kewalramani, Vertex Pharmaceuticals; Christine Leahy, CDW; Karen Lynch, CVS Health; Judy Marks, Otis Worldwide; Lisa Palmer, Regency Centers; Kristin Peck, Zoetis; Linda Rendle, The Clorox Company; Barbara Rentler, Ross Stores; Lori Ryerkerk, Celanese; Lisa Su, Advanced Micro Devices; Julie Sweet, Accenture; Sonia Sygnal, The Gap; Carol Tome, United Parcel Service; Jayshree Ullal, Arista Networks; and Kathy Warden, Northrop Grumman.

Here’s hoping that within a few years there will be too many to list individually.

Q: Is it true that you can buy shares of stock directly from companies instead of through a brokerage? – H.C., Watertown, Wisconsin

A: Yup. While you can own stocks in brokerage accounts and through mutual funds, many companies also let you buy their shares directly. You can do this using Dividend Reinvestment Plans (sometimes called “DRIPs”), Direct Stock Purchase Plans (DSPPs) or other methods. These plans generally let you spend small sums on stock, charge low or no fees and often allow you to reinvest dividends in additional shares or fractions of shares (though reinvested shares can require extra record-keeping).

My dumbest investment

My dumbest investment was selling NVIDIA shares that I’d bought at around $16 each a decade ago, as part of my retirement account. I held them for a few years, then sold because the stock wasn’t performing – yet. I missed out on a return of 14 or 15 times my original investment of $10,000. I learned to be patient, especially when I know the company is on the right track. – D.M., online

The Fool responds: Yikes – with NVIDIA shares recently topping $500 apiece, you missed out on more than a thirtyfold gain in your investment.

But we can’t capture all of every great stock’s gains. Your job as a long-term investor is to park your hard-earned dollars in the most promising investments you find, and then to wait – often for many years, and possibly for decades. Lots of great stocks will increase in value tenfold, twentyfold or sometimes even a hundredfold over long periods. As long as the company is performing well, maintains competitive advantages, and still has plenty of room to grow, it’s best to hang on – through inevitable temporary downturns and occasional slumps.

NVIDIA, which specializes in programmable graphics-processor technologies, has grown powerfully, but many still expect yet more growth due to demand for its chip technology that serves high-end video gamers, data centers and even cryptocurrency miners.