As the Dow Declines, Why Are Pfizer and Merck Rising?

Even though the broader market is losing ground Thursday, its major drug company components are climbing.

Jun 12, 2014 at 12:30PM
Longview

The Dow Jones Industrials (DJINDICES:^DJI) was down 50 points as of 12:30 p.m. EDT Thursday, extending the previous day's loss. With unrest in Iraq helping to boost energy prices, the prospects for consumers having to pay more at the pump and for businesses seeing their power costs rise are weighing on the overall market today. But one surprise is just how well the Dow's pharmaceutical contingent is holding up amid the overall decline, with both Merck (NYSE:MRK) and Pfizer (NYSE:PFE) putting up modest gains so far on Thursday.

Pfe

One short-term factor helping Merck in its 0.5% gain today came from favorable comments and a price target boost today from a prominent analyst firm. With expectations for a more than 10% gain for Merck stock, bullish investors are looking at growth opportunities in areas like the hepatitis C market as helping to drive Merck's recovery from its patent-cliff woes of recent years.

More broadly, though, both Merck and Pfizer have demonstrated a willingness to take aggressive measures to ensure their future prospects. Pfizer, which rose 0.4% by early afternoon, is still assessing what went wrong in its failed bid to buy British counterpart AstraZeneca. Pfizer believed it would have brought large economies of scale in integrating both companies' research and development, manufacturing, and marketing bases, and it also anticipated tax savings from relocating its tax home from the U.S. to the U.K. Yet with so much for both sides to gain, haggling to figure out the fairest division of the spoils will present a huge challenge, and that's why price was such a sticking point for the merger.

Mrk

Source: Steven Depolo, Flickr.

Merck's buyout of Idenix is another example of the lengths that the Dow's pharma components have been willing to go to find the right matches and to maximize their growth potential. Some have argued that Merck overpaid for Idenix, especially given the early stage drugs that the target company has in its current pipeline. Still, the better question is how well Idenix will complement Merck's existing hepatitis C business. With Merck having moved forward with phase 3 trials on some of its more promising compounds, any boost that Idenix can provide will be extremely valuable.

Finally, as the Dow Jones Industrials start to look increasingly prone to a correction, defensive investors will once again turn to safer-looking stocks as great places to ride out a downturn. Both Merck and Pfizer have impressive dividend yields that stand out even among the Dow 30, and with the never-ending need for prescription drugs for millions of patients worldwide, the pharmaceutical industry is relatively recession-proof.

Investors shouldn't expect Pfizer and Merck to be completely immune from a Dow Jones Industrials pullback. But as an aging population makes the demographics more favorable for drug companies, both of the Dow's pharma components have the opportunity for impressive growth in the future.

Leaked: A huge small-cap opportunity
This smart device –kept secret until now – could mark a new revolution in smart tech (with big implications for health care). It's a gigantic market opportunity -- ABI Research predicts 485 million of its type will be sold per year. To learn about the small-cap stock making this device possible – the stock that could mint millionaires left and right when its full market potential is realized – click here.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers