Why Merck Might Be Poised to Keep Sliding

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Merck (NYSE: MRK  ) slipped 1% on Monday after Bernstein Research downgraded the pharmaceutical giant from "outperform" to "market perform."

So what: Along with the downgrade, analyst Tim Anderson lowered his price target to $50 (from $53), representing just 6% worth of upside to where the stock sits now. While value investors might be attracted to Merck's recent slide, Anderson cautions that looming generic expirations and an uninspiring pipeline could continue to weigh on the shares.

Now what: Bernstein expects Merck's 2013 revenue and profit to be down from 2012.

"While expectations and valuation are now lower, many investors continue to view MRK as a good R&D company because of its historic good legacy (this has been part of our original investment case too)," noted Bernstein. "Accordingly, pipeline execution will be critical to the story, but in the nearer-term it is hard to identify many meaningful pipeline catalysts."

With Merck now trading at a forward P/E of 12 and boasting a 3.5%-plus dividend yield, however, patient investors might want to use that short-term uncertainty to build a long-term position.

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