Investing in well-established, blue-chip companies with solid revenue and earnings as well as stable operations can be a bit boring. Such corporations are unlikely to provide massive gains in a short period. But even boring can be efficient, and for long-term investors looking to build serious wealth, it is often best to stick with companies with reliable businesses.
The healthcare industry is a great place to find such stocks since the demand for medical care remains relatively constant regardless of economic conditions. One excellent healthcare stock to consider buying and holding for a while is the drugmaker Merck (MRK -0.62%). Here's why this pharma giant is such an excellent long-term investment.
A solid business
Pharmaceutical companies benefit from patents that protect their products from competition and give them some degree of pricing power. The length of patent protection (20 years in the U.S.) also allows drugmakers time to launch new products before patent cliffs lead to generic competition and an inevitable decline in revenue for older medicines.
Merck's best-known drug is Keytruda, a cancer medicine that has managed to earn more than three dozen approvals in the U.S. alone. In 2021, sales of Keytruda increased by 20% year over year to $17.2 billion.
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Keytruda won't lose patent protection in the U.S. and Europe until 2028, and that gives more than enough time for the medicine to continue growing its sales and contributing substantially to Merck's top line. According to some estimates, Keytruda will become the world's best-selling drug by 2026.
The company does have other products too. Last year, Merck's combined sales of Gardasil and Gardasil 9, two human papillomavirus vaccines, grew by 44% year over year to $5.7 billion. Patent protection for these products will last in the U.S. until 2028. Merck can also count on its animal health segment, which in 2021 saw sales increase by 18% year over year to $5.6 billion.
Merck's total sales for the year came in at $48.7 billion, 17% higher than in 2020. That included sales of $952 million from its COVID-19 antiviral pill Molnupiravir. It is unclear how long the company can benefit from strong sales of this medicine given the current state of the pandemic and intense competition from other coronavirus therapies.
Still, Merck's human health and animal health businesses will benefit from long-term tailwinds. With an aging worldwide population, demand for various healthcare products, including drugs, will only increase. Meanwhile, population growth and increased spending on pets should propel the animal health industry higher. Merck can continue to benefit from these megatrends thanks to its current lineup and pipeline.
In November, Merck acquired biopharma company Acceleron Pharma in a cash transaction valued at $11.5 billion. The deal helped Merck get its hands on a promising pipeline candidate, potential pulmonary arterial hypertension treatment sotatercept. According to Merck CEO Rob Davis, sotatercept "has the potential to become foundational as an add-on therapy in the treatment of pulmonary arterial hypertension, where there is a strong need for a new agent that can potentially address the underlying illness and not just the symptoms of this grievous disease."
Sotatercept is currently undergoing a phase 3 clinical trial, and Merck boasts dozen of other clinical programs as well. Expect the company to launch new products before its crown jewel Keytruda loses patent protection.
In it for the long haul
With a history that dates back to the 1890s, Merck has already stood the test of time. That alone doesn't mean the company will still be around a while, but given its solid track record, robust business, and demographic tailwinds, its future looks bright.
Merck isn't the type of company whose shares will triple in just one year. But given the current volatile state of the market, it may be best to limit exposure to high-risk, high-reward plays anyway. In addition, investors who get in now would be purchasing shares for a bit of a discount. The company's current forward price-to-earnings ratio stands at a reasonable 10.6 compared to 11.3 for the pharmaceutical industry as a whole.
Buy-and-hold investors can't go wrong with this pharma giant.
