The healthcare sector has been one of the best performing sectors of the stock market thus far this year, offering very attractive returns to investors who have been able to ride the trend. Using the Healthcare Select SPDR (XLV) exchange-traded fund ETF as a proxy, healthcare is up over 12.5% thus far this year. The questions for investors at this point is whether the trends continue, reverse, or whether the sector is just too hot overall. In looking at the overall dynamics of the major pharmaceutical companies, Merck (MRK) stands out as an interesting buy at current levels. To arrive at this conclusion, there are some important fundamental metrics that should be considered, but in a trend this strong, checking the technical picture is prudent as well.
How Merck Stacks Up
In a recent study, Matt Schilling ran a basic screen to help find attractive drug companies with high profit margins. The criteria used required that any stocks to be considered had the following characteristics:
- Minimum Return On Equity of 9.50%
- Minimum Return On Assets of 6.25%
- Minimum Profit Margin of 13%
- Minimum Dividend Yield of 3%
The four companies that made the cut were Merck, Pfizer (PFE), GlaxoSmithKline (GSK) and Abbott Labs (ABT). While the statistics for each metrics are available at the above link, there are two that stand out in particular: the profit margin and the dividend yield carried by Merck. The company has a profit margin of 14.46% relative to 14.45% for Pfizer, 18.44% for GlaxoSmithKline and 13.01% for Abbott. To continue reading, click here.