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For over three years Merck and Co. (NYSE: MRK) has been distracted by its pain medication Vioxx. The company voluntarily withdrew the drug from the market in the fall of 2004 following its own study that showed potential higher risk of heart attack. Law suits ensued. This morning, it has been reported that 44,000 plaintiffs have submitted paperwork to accept the $4.85 billion settlement agreement and it is believed that Merck will reach the self imposed 85% threshold to go forward with the deal.
If this comes to pass, Merck, which has been defending itself case by case with mixed results, will be able to take a giant step forward in terms of putting this dubious part of its history behind it. Merck has won more cases than it has lost, but until this is settled, the unknown leaves doubts in some investors' minds and naturally some drag on the stock.
When Vioxx was originally pulled off the market, the stock immediately tanked and sensationalist analysts envisioned losses as high as $50 billion. At the time, I did my own analysis and this settlement turns out to be very close to my own guesstimate. Trusting my own analysis, I began recommending the stock on this site and to family members, and bought into Merck in several portfolios.
The stock closd at $44.30 on Friday. This is about an average gain of 55% since Merck pulled Vioxx off the shelves. MRK's 52-week high / low is $61.62 / $42.32. If you recall, a while back I wondered whether I should keep my Merck. Well, I did, and I will continue to hold the stock.
The drug maker is currently paying a 3.43% dividend yield and has always had good profit margins and strong ROE, ROA and ROIC results. It has been ranked among the best managed companies since anyone cared to track this element of corporate America. Near its 52-week low, in a year where the winners might be the ones that lose the least, the yield alone makes Merck worth consideration.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of MRK.
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