Cramer 4/09
A Market Over-Reaction
Cramer went out on a limb and recommended Merck MRK, as the next stock in his series of "catch-up" stocks that lag against their peers.
Merck recently suffered huge losses, to the tune of $31 billion of its marketcap, after negative reports surfaced regarding its anti-cholesterol drug Vytorin, which it co-marketed with Schering-Plough SGP.
"I believe Merck's been beaten down way too much," said Cramer. Just days after the negative study was released, Merck saw only modest dips in the prescription rates for Vytorin, indicating that the market may have overreacted to the news, he noted.
Calling the Vytorin fiasco "just a speed bump for Merck," Cramer said the company's $31 billion loss of marketcap "absurd."
But now that the damage has been done, Cramer said the earnings estimates for Merck "are just too low."
He said drug stocks are the ones you want to own in a recessionary environment, and with Merck's 3.7% dividend yield, it's just too attractive to pass up.
Merck estimates it will take in $4.6 billion in sales this year and has several blockbuster drugs in its pipeline. The company now trades at just 11 times forward earnings.
He is impressed with the company's stock buyback program, which still has $5.1 billion left with which to purchase its shares. "Just two months ago, they were buying back shares at $59."
Cramer's called Merck his No. 1 pick in the Dow Jones Industrial Average and a quality company that trades at a huge discount. |
