Merck’s narrower focus is set to pay off for patient investors

Article Excerpt

Historically, we have recommended few pharmaceutical stocks for our readers’ portfolios. That’s because those companies must continually invest large sums to develop new drugs as their older products lose their patent protection. Even then, there’s no guarantee those new drugs will repeat past successes. However, Merck’s plan to combine some of its smaller businesses and then spin them off as one company helps offset some of that risk. While the split gives investors a stake in the new company, it also lets the remaining firm focus on its most-promising drugs while lowering its costs. The new company’s profitable legacy brands could also make it an attractive takeover target­—a potentially lucrative deal for shareholders. MERCK & CO. INC. $72 is a spinoff buy. The stock (New York symbol MRK; Consumer sector; Shares outstanding: 2.5 billion; Market cap: $180.0 billion; Dividend yield: 3.4%; Takeover Target Rating: Lowest; www.merck.com) lets you tap one of the world’s largest pharmaceutical companies. Merck produces over 50 different drugs, mainly treatments for cancer, diabetes and…

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