We recently published a list of 15 Best Large-Cap Value Stocks to Buy as the Recession Hits. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against other best large-cap value stocks to buy as the recession hits.
Goldman Sachs highlighted that equities around the world traded in and out of a bear market — which is often defined as a 20% decline from the recent peak. According to Peter Oppenheimer, chief global equity strategist at Goldman Sachs Research, the history of bear markets can provide some clues regarding the duration and severity of such downturns. U.S. stocks ended significantly higher after Trump announced his decision to put a 90-day pause on the additional country-specific portion of the reciprocal tariffs. That being said, Oppenheimer believes that a sustained rebound isn’t yet in place. As per the strategist, the valuations are required to adjust further before equities can shift into the “hope” phase of the next cycle.
What to Expect from Current Earnings Season?
With the Q1 2025 earnings season underway, Morningstar informs that investors can expect more focus than usual on what companies want to say regarding their outlooks, while the uncertainty surrounding tariffs means offering weaker, less confident, or even no guidance. Tariffs can impact the corporate bottom lines in several ways, both directly and indirectly. Notably, the increased import costs put more pressure on the margins. While some firms can decide to alleviate the pressure by increasing the prices for customers, others can choose to absorb them, says the firm. Morningstar, while quoting FactSet’s consensus estimates, mentioned that analysts expect 6.8% earnings growth in Q1 for companies in the S&P 500 benchmark index. For the full year, analysts anticipate an 11.2% growth.
Forward guidance is what generally moves the financial markets. If the firm warns that there can be a possibility to see smaller profits, the stock tends to fall. This might happen across the market, but there is a silver lining. As per Morningstar chief research and investment officer Dan Kemp, it is important to note that most of the value lies in the future. Therefore, the impact on the company’s real value is expected to be muted. According to him, widening of the gap between stock prices and future real values can be a very fertile soil for the market investors.
Christian Mueller-Glissmann, head of asset allocation research within portfolio strategy for Goldman Sachs Research, says that investors need to think about diversifying regionally and across styles. To be specific, this consists of low-volatility stocks, i.e., equities from more defensive sectors, that fluctuate less than the broader market.
Our Methodology
To list the 15 Best Large-Cap Value Stocks to Buy as the Recession Hits, we considered companies from the industries which are expected to be resilient in a recessionary environment, such as utilities, healthcare, and consumer. Next, we chose the stocks that trade at a forward P/E of less than ~20.0x. Finally, the stocks are arranged in ascending order of the hedge fund sentiments, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Is Merck & Co., Inc. (MRK) the Best Large-Cap Value Stock to Buy as the Recession Hits?
A close-up of a person's hand holding a bottle of pharmaceuticals.
Merck & Co., Inc. (NYSE:MRK) operates as a healthcare company. Nico Chen, an analyst from. DBS, maintained a “Buy” rating on the company’s stock, and the associated price target was $100.00. The analyst’s rating is backed by factors demonstrating its robust market position and growth potential. As per the analyst, a significant driver of the positive outlook is KEYTRUDA, Merck & Co., Inc. (NYSE:MRK)’s blockbuster drug, which has supported it in establishing the company as a leader in oncology. KEYTRUDA sales increased 18% YoY to $29.5 billion in FY 2024. However, excluding the impact of foreign exchange, the sales went up by 22%. The analyst believes that KEYTRUDA continues to expand the company’s presence in global markets.
Elsewhere, the Goldman Sachs analyst team started coverage on the company’s stock with a “Buy” rating. As per the firm’s assessment, the market has been implying an overly pessimistic terminal growth rate for Merck & Co., Inc. (NYSE:MRK). It is not recognizing the value of the company’s pipeline and is undervaluing its Animal Health business. The Animal Health division happens to be on a growth trajectory.
GreensKeeper Asset Management, an investment management company, released the third quarter investor letter. Here is what the fund said:
“Merck & Co., Inc. (NYSE:MRK) was our second-largest detractor this quarter, declining -8.3%. MRK’s leading HPV vaccine, GARDASIL 9, faced challenges internationally due to inventory buildup within its Chinese distributor, which is expected to reduce shipments for the remainder of 2024. Despite this short-term impact, the long-term outlook for GARDASIL 9 remains promising. Meanwhile, the company’s $27 billion Keytruda cancer juggernaut continues to grow at a healthy clip, powering earnings growth.”
Overall, MRK ranks 5th on our list of best large-cap value stocks to buy as the recession hits. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for a deeply undervalued AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
