We recently compiled a list of the 11 Best Undervalued Stocks to Invest in Now. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other best undervalued stocks.

How Will Tariffs Affect the Market?

On March 5th, BBC reported that the US stock market had fallen after the tariffs sparked trade war fear. The recent imposition of tariffs by President Donald Trump on imports from Canada, Mexico, and China has sparked significant concerns about a potential trade war. The United States has imposed a 25% tariff on most imports from these countries, with Canadian energy products facing a 10% tariff. On the other hand, tariffs on Chinese imports have been increased from 10% to 20%. As a result, Prime Minister of Canada, Justin Trudeau announced immediate tariffs on $30 billion worth of US goods, with plans for additional tariffs on $125 billion in goods over the next three weeks. Moreover, China imposed tariffs ranging from 10% to 15% on various US agricultural imports, such as chicken, pork, and soybeans. The tariffs have raised fears of inflation and a broader trade conflict, leading to a decline in US and global stock markets. As a result, the S&P 500 experienced a significant drop, and European markets also closed lower.

Today, Richard Fisher, former Dallas Fed president, appeared on a CNBC interview to talk about the recent tariffs and their impact on the market. Fisher stated that a tariff is a cost factor that goes into producing and distributing a product, making it a form of tax. Business operators of all sizes have to figure out a way to protect their margins against the impact. On the other hand, the Federal Reserve has to gauge the amount of revenue it would generate from these tariffs considering it is slowing down the economy and can cause inflation as the companies will have to raise prices to maintain their margins. Moreover, Richard Fisher noted that such tariffs take a long to be digested, as businesses don’t change something overnight. The only way for companies to maintain their margins without increasing prices is by increasing productivity, which again does not happen overnight and takes time.

While talking about how the Fed might react to the tariffs, Fisher mentioned that it is a little too early to guess. The Fed is bringing inflation down and we are getting closer to the 2% target, however, at the same time tariff increases the cost of doing business, which might slow down the economy and tickle up inflation. To conclude Fisher noted that tariffs won’t be digested quickly and will take time.

Our Methodology

For this article, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we aggregated a list of stocks trading below the forward P/E of 15 and earnings growth expectations this year. Next, we cross-checked the Forward P/E from Seeking Alpha and Earnings growth from Yahoo Finance. Lastly, after sorting our list by market capitalization, we ranked the stocks in ascending order of the number of hedge funds holding each stock, sourced from Insider Monkey’s Q4 database of hedge funds.

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)

Forward P/E Ratio: 10.27 

Earnings Growth This Year: 17.44% 

Number of Hedge Fund Holders: 91

Merck & Co., Inc. (NYSE:MRK) is a large pharmaceutical company that focuses on creating and selling medicines, vaccines, and other health-related products for both humans and animals. The company continues to make significant investments in expanding KEYTRUDA’s indications to expand its lifecycle and market dominance.

The company’s anti-PD-1 therapy, KEYTRUDA (pembrolizumab), has been granted priority review by the FDA for treating patients with resectable locally advanced head and neck squamous cell carcinoma. KEYTRUDA is proposed for use before surgery and after surgery in combination with radiotherapy and possibly cisplatin, then as a single agent. This application is based on positive results from the Phase 3 KEYNOTE-689 trial, which showed significant improvements in event-free survival and major pathological response compared to standard treatments.

Merck & Co., Inc. (NYSE:MRK) delivered robust performance in fiscal 2024, driven by demand for innovative products like KEYTRUDA, which is helping more cancer patients worldwide. Other contributing factors included the successful launch of WINREVAIR and the robust performance of its Animal Health division. For 2025, the company expects sales between $64.1 billion and $65.6 billion, with a non-GAAP gross margin of approximately 82.5%. It is one of the best-undervalued stocks to invest in now.

GreensKeeper Asset Management stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its Q3 2024 investor letter:

“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 4th on our list of the best undervalued stocks to invest in now. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an 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 Complete List of 59 AI Companies Under $2 Billion in Market Cap.

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