When you’re concerned about an economic downturn, a relatively safe solution is to stick with famous names like Merck (NYSE:MRK). I recommend holding MRK stock, reinvesting the dividend payments and sleeping soundly at night.
Believe me, I fully understand the importance of low-volatility investments in 2023’s fourth quarter. Interest rates could stay higher for longer, and the stock market’s high flyers may be vulnerable to a sharp pullback.
That’s why prudent investors should look at tried-and-true corporate giants like Merck. You probably won’t get a “moonshot,” but when the you-know-what hits the fan, you’ll thank me for recommending this safety-first approach.
The Bad News: Insiders Sold MRK Stock
To be fair and balanced, I must acknowledge the bad news first. Specifically, as of Oct. 5, Merck insiders reportedly sold $8.3 million worth of MRK stock during the past 12 months, including $948,000 worth in the last three months. And supposedly, Merck Executive Vice President and General Counsel Jennifer Zachary sold $2.3 million shares of her company in a single transaction.
All of this insider selling may be considered a red flag. Do Merck’s executives know something that the general public doesn’t? That’s a valid question, but I wouldn’t consider the insider selling to be a deal-breaker.
After all, there are good reasons for safety-minded investors to consider Merck. For one thing, MRK stock isn’t a high flyer in 2023 and is actually down for the year, so far. This indicates that the stock probably wouldn’t fall very far if there’s a broader economic downturn.
Furthermore, Merck shares have an ultra-low five-year monthly beta of 0.38. This means that the stock has historically moved much slower than the S&P 500.
In other words, MRK stock hasn’t been volatile and probably won’t be volatile in the near future. In addition, Merck pays a forward annual dividend yield of 2.81%, which income-focused investors ought to appreciate.
Merck’s Pipeline Is Fully Packed
Even if there’s a recession, the need for healthcare won’t vanish. There will still be health issues to address, including Covid-19. To that end, Merck can generate revenue by selling its Covid-19 treatment to the U.S. commercial market.
But of course, Merck has plenty of products in its pipeline that aren’t related to Covid-19. Indeed, it’s hard to keep track of Merck’s products that are making progress on the clinical and/or regulatory fronts.
Just to name a handful of recent developments, Merck has announced progress with its current and/or prospective treatments for non-small-cell lung cancer, renal cell carcinoma, cervical cancer, urothelial cancer/muscle-invasive urothelial carcinoma and pulmonary arterial hypertension.
Thus, Merck has a number of irons in the proverbial fire to potentially generate significant revenue streams. Plus, Merck’s efforts to commercialize its various products could have the fortunate by-product of saving lives.
MRK Stock: Just Hold It and Reinvest the Dividends
Worries about a recession are understandable. To mitigate your portfolio’s risk, it makes sense to invest in giant companies with high-conviction products, like Merck.
Moreover, Merck insider selling might be off-putting, but it doesn’t have to be a deal-breaker. The risk is low and the potential gains shouldn’t be underestimated, especially since Merck pays a decent dividend. Therefore, I recommend that cautious investors should buy MRK stock and reinvest all dividend distributions for the long term.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
