Why Merck Could Move the Dow Monday

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is trading slightly higher at midday, posting a 16-point gain as of just after noon EDT as a mixed set of earnings reports kept the Dow from moving more sharply in one direction or the other. Merck (NYSE: MRK  ) didn't participate in the Dow's gains, joining pharmaceutical peers Johnson & Johnson (NYSE: JNJ  ) and Pfizer (NYSE: PFE  ) with slight declines on the day.

Merck will release its third-quarter results before the market opens on Monday. It will follow up its release with a press conference scheduled to begin at 8 a.m. EDT.

Investors expect Merck's earnings to fall from year-ago levels, with more modest declines in revenue than the company has seen in past quarters. With patent protection having expired more than a year ago for its former blockbuster Singulair asthma medicine, Merck's sales slide should moderate in the quarters to come. But in the long run, Merck faces further patent-cliff expirations that could bring similar sales declines if it can't develop new high-sales drugs to replace them.

Merck's results will have implications for the entire Dow, given that both Pfizer and Johnson & Johnson have huge exposure to the pharmaceutical space. J&J's earnings results were driven higher by pharmaceuticals, with an 11% jump in pharma-segment revenue showing how hard the company has worked to deal with its own patent-cliff issues. By contrast, investors expect Pfizer to have many of the same issues as Merck, although Pfizer earnings are seen posting a slight year-over-year increase despite a big drop in sales.

Watch the dividend
Finally, Merck investors should look for a potential dividend increase. In each of the past two years, Merck has boosted its dividend in the fourth quarter of the calendar year, albeit by just a single penny last year. A failure to do so this year could indicate a lack of confidence in Merck's future, and that could have dire implications throughout the Dow on Monday.

By contrast, if you want Dow stocks with dividend growth you can count on, you can find names that have more solid prospects than Merck. Get the scoop today by checking out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

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Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
MRK $62.96 Down -0.06 -0.10%
Merck and Co. CAPS Rating: ****
JNJ $118.81 Down -0.65 -0.54%
Johnson and Johnso… CAPS Rating: *****
PFE $34.26 Up +0.11 +0.32%
Pfizer CAPS Rating: ****