We recently compiled a list of the 11 Oversold Blue Chip Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other oversold blue chip stocks.

The uncertainty related to the tariff announcements continues to influence Wall Street. Reuters reported that the S&P 500 is down 4.3% since Trump took office on January 20, and tariffs are the main concern for investors as they believe that can adversely impact the economic growth and be inflationary. While Trump believes that tariffs can increase the country's revenue, fuel broad-based growth, and can be used as a negotiating tool with other countries, the investors believe that trade policies can weaken consumer confidence and limit the capital spending from companies.

Long Term Outlook Remains Intact

As per Franklin Templeton, the US equities have managed to provide strong gains over the past few years, with the S&P 500 repeatedly touching record highs, thanks to the Magnificent Seven’s dominance in AI. Despite elevated valuations, the broader market outlook is positive. Innovation and investment continue at a pace, sales growth has been accelerating, and earnings are expected to see a double-digit rise this year. Also, the US economy has a more business-friendly administration. That being said, there are risks, mainly related to the US trade policy and the expected impact of tariffs on critical sectors, including technology.

Amidst such uncertainties, Franklin Templeton believes that investor confidence in the US equities is expected to remain strong. While the risks might be elevated, the new administration’s policy changes are expected to finally result in long-term positives for the broader US economy.

READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.

Blue Chips to Provide Shelter

While the Mag 7 stocks are well-placed for the long-term growth, the market leadership is expected to broaden as and when acceleration in innovation occurs, says Franklin Templeton. The investment firm believes that active management is of utmost importance. The pivot from AI infrastructure to platforms remains well underway. Therefore, identifying the right companies at the right time—ones possessing the technology, strategy, and adaptability to maintain and sustain long-term growth—are expected to be critical to investment success.

The US equities, mainly large caps, have been performing strongly, courtesy of the innovation and investment. Notably, over the past 6 months, the Dow Jones Industrial Average has seen an increase of over ~4.5%. Even though the Mag 7 stocks continue to support the market momentum, the investment firm sees growing opportunities beyond such market leaders. With the continuation of AI-driven cycle, the competitive landscape remains dynamic and has been creating new growth areas.

Our Methodology

To list the 11 Oversold Blue Chip Stocks to Buy According to Hedge Funds, we used a screener and the SPDR S&P 500 ETF to shortlist the companies that have declined over the past year. Next, we chose the stocks that are popular among hedge funds, as of Q4 2024. Finally, the stocks were arranged in ascending order of their hedge fund sentiments.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A close-up of a person's hand holding a bottle of pharmaceuticals.

Merck & Co., Inc. (NYSE:MRK)

% Decline Over Past 1 Year: ~22%

Number of Hedge Fund Holders: 91

Market Cap as on March 7: $239.0 billion

Merck & Co., Inc. (NYSE:MRK) operates as a healthcare company. Nico Chen, an analyst from DBS, maintained a “Buy” rating on the company’s stock and the associated price target remains the same at $100.00. The rating is backed by factors highlighting the company’s healthy market position and growth potential. The analyst further added that a significant driver of this favourable outlook is Keytruda, Merck & Co., Inc. (NYSE:MRK)’s blockbuster drug, which has placed the company as a leader in oncology.

Furthermore, another critical factor is the promising development of sac-TMT, which is an antibody-drug conjugate for treating advanced non-small cell lung cancer, which has received a Breakthrough Therapy Designation from the US FDA. The analyst opines that this designation is expected to expedite its market entry and drive Merck & Co., Inc. (NYSE:MRK)’s share price. Overall, the rating stems from the company’s strong financial outlook, with an anticipated ramp up of net income growth and a comparatively low risk of patent expiries versus the industry peers.

GreensKeeper Asset Management, an investment management company, released its Q3 investor letter. Here is what the fund said:

“Merck & Co., Inc. (NYSE:MRK) was our second-largest detractor this quarter, declining -8.3%. MRK’s leading HPV vaccine, GARDASIL 9, faced challenges internationally due to inventory buildup within its Chinese distributor, which is expected to reduce shipments for the remainder of 2024. Despite this short-term impact, the long-term outlook for GARDASIL 9 remains promising. Meanwhile, the company’s $27 billion Keytruda cancer juggernaut continues to grow at a healthy clip, powering earnings growth.”

Overall MRK ranks 2nd on our list of the oversold blue chip stocks to buy according to hedge funds. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.