Merck (NYSE:MRK) experienced a rather disappointing year in 2013, with its shares underperforming the S&P 500, as did sector peer Eli Lilly (NYSE:LLY), although AbbVie (NYSE:ABBV) delivered more impressive share price growth -- over 50% -- in 2013. 

2014 has seen a reversal of this trend, with Merck and Eli Lilly beating the S&P 500, while AbbVie is behind. So, can Merck stay ahead of AbbVie and the S&P 500? Furthermore, can it overtake Eli Lilly to be the best performing of the three pharmaceutical peers during 2014?

Upbeat news flow
Recent news flow has been fairly positive for Merck. Of course, its fourth quarter results were slightly disappointing, with net income down 14% when compared to the fourth quarter of 2012. However, this seems to have been priced in by the market, as shares underperformed the wider market during 2013 (as mentioned).

Of course, a major reason why Merck's shares have performed strongly in 2014 is developments surrounding its PD-1 drug, MK-3475. Indeed, Merck announced plans to partner with three major biopharma companies (Amgen, Pfizer, and Incyte) in January, with the group all set to combine MK-3475 with other drugs in clinical trials. In addition, Merck will increase its own work on the drug, with the company announcing early stage studies for 20 different PD-L1-positive solid tumor types that are yet to be explored.

More recently, news on Merck's pipeline has focused on its animal health division. Just last week a two-month head-to-head research study showed that Merck's Activyl was more effective than Frontline Plus in controlling flea populations on pets. Indeed, Activyl eliminated more than 99% of fleas, while Meral's Frontline Plus managed a reduction of around 55%.

Still on the topic of fleas, Merck also received marketing authorization in the European Union for the veterinary medicinal product Bravecto, which is the first and only treatment that has been shown to kill fleas for up to 12 weeks in a single dose (administered as a chewable tablet). The treatment is scheduled for launch across Europe as soon as April 2014.

More positive news flow
Of course, Merck isn't the only stock that has experienced upbeat news flow recently. For instance, AbbVie announced the completion of its Phase 3 hepatitis C virus (HCV) studies on the day of its fourth quarter 2013 results release. The news was positive, with patients enrolled in the trials sustaining relatively high responses to treatments. 

Meanwhile, Eli Lilly announced this week that its experimental, once-weekly drug for Type 2 diabetes, Dulaglutide, was comparable to Novo Nordisk's once-daily Victoza in reducing a measure of blood sugar in a patient study. This could provide Eli Lilly with a competitive advantage, with sales having the potential to reach around $2 billion per annum (should the drug be approved by the FDA).

An encouraging yield
As well as positive recent news flow, Merck continues to offer a significantly better yield than that found on the S&P 500. While the latter currently yields just 1.95%, Merck provides an income of 3.1%, and this could prove to be a key reason why it may outperform the index this year.

Indeed, sector peers AbbVie and Eli Lilly also offer significantly better yields than the index. The two companies both offer yields of 3.3% -- slightly ahead of Merck and two-thirds higher that that currently offered by the S&P 500.

Looking ahead
With a yield above that of the S&P 500, Merck looks to be well-placed to deliver continued strong performance in 2014. Of course, AbbVie and Eli Lilly fall into the same bracket, meaning they could also beat the S&P 500 this year. As such, it could be a positive year for all three stocks, and with the potential for further positive updates surrounding its pipeline, Merck in particular could have a great year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.