Accumulation You Can Taste

Remember that scene in The Big Short where everyone thinks Michael Burry’s lost his mind betting against housing?

That’s exactly how I felt last week at a biotech conference in Boston when I suggested Merck (MRK) might be the most mispriced asset in big pharma.

The room went dead quiet. One PM actually choked on his $18 turkey wrap.

The irony, of course, is that Merck’s fundamentals are stronger than half the names those same managers are overloaded in, and unlike many of those, Merck isn’t depending on hype or hypothetical revenue models.

What they’re missing is the durability of Merck’s position in oncology. Keytruda continues to deliver clinical wins across a wide range of cancers, and its growth trajectory hasn’t slowed.

Behind the scenes, Merck has been methodically widening its footprint by combining Keytruda with other agents across hundreds of trials. These are well-targeted expansion cohorts, not the spaghetti-on-the-wall experiments we see elsewhere.

Every successful trial tightens their grip on reimbursement protocols and clinical guidelines, and the result is a product that keeps adding cash flow with relatively low incremental cost.

Merck’s strategy here is precise. They’re building on regulatory precedent to move faster in new indications, creating a playbook that’s hard to replicate.

I spoke recently with a former FDA official who now advises institutional funds. According to him, Merck has quietly become the benchmark for trial design efficiency. While others are still pitching first-in-class longshots, Merck is scaling incremental wins that pay off far more reliably.

Technically, the setup is the cleanest I’ve seen in months. Price is well above the 30-week EMA, which has turned upward – something I watch closely for confirmation of trend strength.

Momentum is picking up across both short and long timeframes. The Percentage Price Oscillator crossed bullish in October, and it hasn’t looked back.

Volume has been consistently skewed toward accumulation since the May low. This is institutional money moving with intent, not retail speculation or algorithmic noise.

I ran the numbers again last night: Merck’s yield is 3.49%, and the payout ratio remains below 40%. That tells you two things: the dividend is not only sustainable but actually built to expand.

In fact, Merck has raised it 14 years in a row, even during periods when most peers were cutting or freezing distributions. There’s a reason long-only managers hold this in their core book. The dividend doesn’t just show up, but is backed by cash flow and strategic discipline.

Merck’s acquisition program is also worth watching. They’ve been selectively targeting mid-stage assets that complement their current portfolio, especially in oncology and immunology.

These aren’t splashy, overpriced deals. They’re efficient, accretive, and designed to fit within existing commercial infrastructure.

That approach lowers integration risk and accelerates time to market – something most acquirers forget when chasing headlines.

The stock has outperformed the S&P 500 by a wide margin since May, yet it’s still flying under the radar.

Relative strength has quietly crossed back above its own 30-week EMA, which is a subtle but telling shift in sentiment.

If you’re waiting for a front-page catalyst, you may be too late. These moves tend to get priced in well before the average investor takes notice.

One final note. A contact of mine at McKinsey, whose client list includes several top-10 pharma firms, told me they recently completed a multi-region project on emerging market optimization for a major US drugmaker. There’s no public disclosure, of course, but based on the focus areas, I’d bet the client was Merck.

The implication is clear: growth outside the US is being engineered with intent, and McKinsey doesn’t get called in unless there’s a lot of money on the table.

Overall, Merck is executing with consistency in a market that’s increasingly dominated by binary outcomes and hype cycles.

It offers capital preservation, yield, and upside – all backed by clinical performance and a management team that understands capital allocation. It doesn’t need a narrative. It already has the numbers.

And if that doesn’t impress the sandwich-choking skeptics in Boston, I’m happy to keep buying while they wait for someone else to tell them it’s safe.