New Trade for October 20th, 2023

The market has seen its fair share of ups and downs lately, and this morning is no exception. As a result of the recent surge in the 10-year Treasury yield, stocks were down in early trading, with major averages on track for a losing week. The current climate may have some scratching their heads, but for those who seize opportunities, it can be a game-changer.

We’ve got a recommendation today that focuses on an underappreciated stock with favorable pricing and several positive catalysts.

Trade Alert: Merck & Co., Inc. (MRK)

Recommendation: Buy

Price Target: $122

Upside Potential: Approximately 21%

Background: The market has been showing some volatility lately, and investors are looking for opportunities. We’ve got a recommendation today that focuses on an underappreciated stock with favorable pricing and several positive catalysts.

Why Merck?: According to UBS, investors might not be fully recognizing Merck’s robust treatment pipeline. The bank has upgraded this biopharmaceutical stock from neutral to buy with a price target of $122, implying a potential 21% upside.

Pipeline Potential: Analyst Trung Huynh believes that “underappreciated pipeline readouts” will be the main driver of multiple expansion for Merck. By 2030, he forecasts a pipeline worth $15.5 billion for the company.

Key Catalysts: Huynh points out two crucial Merck treatments: Keytruda, used in cancer immunotherapy, and Gardasil, a vaccine for HPV. He believes that consensus estimates undervalue Keytruda’s revenues as it gains prominence in treatment algorithms and Gardasil’s growth in China.

Keytruda’s Path: Keytruda is expected to play a significant role in Merck’s performance in the near term, with a robust catalyst path ahead. The analyst forecasts peak sales of $36 billion for Keytruda.

Above-Peer Growth: Merck’s growth profile surpasses that of its peers, largely due to these two treatments and other underappreciated catalysts.

Current Status: Despite a 9.5% decline in its share price since the beginning of the year, Merck is well-positioned for growth and offers an attractive upside potential.

Recent Developments: The recent FDA approval for Keytruda’s use in combination with platinum-containing chemotherapy adds to the positive sentiment. Additionally, Merck is set to report its third-quarter results next week.

Conclusion: In an uncertain macroeconomic environment, pharmaceutical stocks with strong near-term growth and relatively lower downside risk are poised to outperform. Merck, with its solid growth driven by Keytruda and Gardasil, fits this profile.

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