We recently compiled a list of the 10 Best Defensive Stocks To Buy Now. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other defensive stocks.

Defensive stocks tend to remain stable and less affected by economic downturns. These companies operate in sectors that provide essential goods and services, which people need regardless of the economic climate. Defensive stocks mostly include stocks of companies among utilities, consumer staples, and healthcare sectors as they provide basic necessities of life. Companies in these sectors often show less volatility, and often provide steady dividends. They usually offer a safer investment choice during periods of market uncertainty.

US Stocks Surge But Experts Remain Cautious 

U.S. stocks are having a great time, which is owed to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have seen significant gains, as they are up 4.3% and over 6% over the last 5 days on August 15, respectively. The global markets have also recovered from recent losses, and the US broader market is back from the losses it faced in the first week of August. The investor sentiment remains strong and U.S. equities are seeing continuous inflows. Additionally, Fed officials are hinting at potential rate cuts which support optimism that the U.S. economy is on track for a soft landing.

However, some experts are still concerned about the future of the US economy and markets and hold a more conservative view. According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.

According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.

Leon Cooperman’s Perspective on the Current Conditions

On August 15, Omega Advisors chairman and CEO, Leon Cooperman shared his perspective on the current economic outlook with CNBC Money Movers. Cooperman expressed a cautious outlook on the economy, which is driven by two main factors. First, he is alarmed by the rapid increase in the U.S. national debt, which has doubled from about $17 trillion in 2017 to approximately $34-35 trillion today. He said that this level of debt growth, which outpaces economic growth, is unsustainable and could lead to a fiscal crisis. However, the exact timing of such a crisis is uncertain. He further added that neither political party is addressing this looming issue.

Secondly, Cooperman compared today’s market conditions to past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bankrupt. He noted that during those times, the 10-year bond yield was 6.5%, much higher than the current rate of around 3.9%. He believes that if the current bond rate is appropriate, market valuations aren't too high. However, he suspects that interest rates are too low and anticipates a rise in long-term rates, particularly the 10-year Treasury yield.

While he expects the Federal Reserve to cut short-term rates, which could ease borrowing costs, he believes long-term rates will increase, leading to a decline in bond prices and potentially putting downward pressure on stock valuations. If long-term rates rise significantly, it could make the stock market less attractive and could possibly result in a market decline.

Even though the current year has shown healthy markets with a couple of corrections, Leon Cooperman’s expectations from the markets cannot be ignored. Cooperman has a track record of being one of the most successful investors of the past several decades. If they hold out to be true, investors might look toward more defensive sectors of the market.

Our Methodology

For this article, we used stock screeners to identify over 50 large to mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list to 10 stocks with positive analyst sentiment and the highest average analyst price target upside as of August 16.

A close-up of a person's hand holding a bottle of pharmaceuticals.

Merck & Co., Inc. (NYSE:MRK)

Stock Price as of August 16: $113.53

Average Analyst Price Target Upside as of August 16: 25.08%

Merck & Co., Inc. (NYSE:MRK) is a leading American multinational pharmaceutical company. It was originally established in 1891 as the U.S. subsidiary of the German Merck Group and it became independent after World War I. Today, it is known globally for developing and producing a wide range of medicines, vaccines, biological therapies, and animal health products.

Some of its blockbuster drugs include Keytruda for cancer immunotherapy and Januvia for diabetes. Merck (NYSE:MRK) has a history of significant medical breakthroughs and continues to be one of the top pharmaceutical companies worldwide. In addition, the company has over 80 programs in phase 2 of clinical trials, over 30 programs in phase 3, and over 10 programs under review, which are awaiting FDA approval.

As of August 13, Leerink Partners analyst Daina Graybosch has reaffirmed a Buy rating on Merck (NYSE:MRK) stock and expressed confidence in the company's future. Despite recent challenges with some drug trials, Graybosch is optimistic about its new treatments, especially for small-cell lung cancer.

The analyst sees potential in upcoming data from the company's pipeline, which could lead to faster approvals and boost the company's growth. Graybosch also believes Merck’s (NYSE:MRK) plan to use Keytruda's existing infrastructure, including a new subcutaneous version, will help protect against competition. Overall, the analyst is positive about the company's strategy and growth prospects.

At the time of writing on August 16, 27 analysts have covered Merck (NYSE:MRK) stock with an average price target of $142, which represents an upside of over 25% from the current levels. This brings the stock to 7th position on our list of best defensive stocks to buy.

Carillon Tower Advisers stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its first quarter 2024 investor letter:

Overall MRK ranks 7th on our list of the best defensive stocks to buy. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.