Pharmaceutical stocks did not fall as much during the March 2020 market crash. The pharmaceutical sector is considered as a defensive play by investors along with other sectors like utilities and consumer staples. Investors believe that people will need food to eat and medicines to stay healthy (or alive) no matter what happens in the world. The demand for certain products tends to be recession-resistance. So, if you are looking for pharmaceutical stocks to invest in in 2021, then you have plenty of names to choose from. Pfizer is one name that has been in the news because of its vaccines. Moderna is another one, and Regeneron is also one because of its COVID treatment drug. However, there are some centuries-old companies like Merck that are also worth analyzing. Merck has a stellar track record for paying dividends and consistently increasing dividends year after year.
Merck Reports Q42020 Earnings Results
Merck reported its fourth-quarter 2020 earnings results in February 2021. Revenues grew from $11.8 billion to $12.5 billion years on year. Meanwhile, operating expenses increased by 4% year on year to more than $5.4 billion. Earnings per share came in at $1.32, a growth of 17% from the corresponding number in Q42019. Merck’s valuation ratios look interesting as well. Its price-to-sales ratio is 4.12, whereas the 5-year average is 4.43. The price-to-earnings ratio is 28, whereas the 5-year average is 41. The price-to-book ratio is slightly elevated at 7.8 as compared to the 5-year average of 5.85. However, the dividend yield is at 3.24%, whereas the 5-year average is 2.94%. The dividend yield is at a 5-year high. Based on a preliminary analysis, Merck could be among the pharmaceutical stocks to buy for 2021.
Towards the end of 2020, there was news of Berkshire Hathaway making a $6 billion investment in companies like AbbVie, Merck, and Bristol-Myers. The Oracle of Omaha must have seen something to take such long positions in the stocks. The outlay for Merck was estimated to be around $1.86 billion. While we are not suggesting that you should blindly follow Warren Buffet, we are making the point that the company should be more closely analyzed. Perhaps, there is some value to be extracted.