Thousands of cases upon cases and more on the way. Analysts started making projections of loses in the tens of billions. I have even read of some as high as $50B. Holy cow! That's not good!

But I wasn't scared away. The losses are quite manageable for Merck, I thought. Why, you say? Because those cases would not be settled for ten years. So the company was not just going to write a check today. There had to be years of litigation, years of appeals and some payouts over a long time. And if a settlement was reached it would do nobody any good to put Merck out of business or they could not pay up. Reminds me of Big MO - Philip Morris, now Altria.

For those that might not be aware, Altria is the best-performing stock of all time in the S&P 500, and it still has HUGE cash flow and a HUGE dividend now, despite all the bad press, litigation and turbulent markets.

Ability to pay? Merck will have gross sales approaching $30 billion this year, a figure the company has hit before. At just 7% annual growth that will increase to over $60 billion in ten years from now. I figure that whatever they have to pay out starts in five years so $60 billion is the mid point sales figure in a ten year payout schedule. That makes their overall sales average over the ten year schedule approximately $600 billion. Using the low end of their profit margin history, say 20%, they would have $120 billion available to pay the worst case scary $50 billion dollar payout. Keep in mind they already had $7 billion in the bank (and had $15 billion and growing at the end of 2005) in cash and short term investments.

Given management's understanding of its exposure and a profit margin that is actually higher than 20%, Merck might actually have $150 billion from which to pay. And in my mind the $50B was a worst case. I was willing to assume half that, perhaps $25B, might be a more likely ceiling, and as of this date they have won four of seven cases that have been tried and are appealing the other three. For comparison ask yourself this: if you earned $600,000 over a ten year period would you sweat buying a $25,000 car? I don't think so.

It is even possible that Merck with its huge cash flow and strong margins will accumulate enough cash to fully cover its legal exposure without missing a beat over the next ten to fifteen years.

So I had no fear and bought all I could afford at the time. Now I am up considerably, tax free and the outlook for Merck seems to be changing to the positive. A recent article by Johanna Bennett in Barron's (July 24): Merck Is On The Mend suggests now might be a good time to buy into Merck's future, sighting FDA approval of new drugs a growing pipeline of potential opportunities, profitable collaborations and more. However, if others are buying I might want to sell into strength soon and find another mis-valued stock.

For now I am going to hold on because I do believe there is more upside potential than downside and I have not found the right place to put the money if I sold it. I usually am fully invested but not all in stocks. I do not like to have non-working capital.

Sheldon Liber is the CEO of a small private investment company and the vice president for Design and Research of an Architecture & Planning firm.