It's been an excellent year for stocks amid a resilient macroeconomic backdrop. The S&P 500 index is up 20% year to date with several high-profile companies delivering spectacular returns heading into 2025. At the same time, not all stocks have rallied alongside the market. Looking at some of the laggards can sometimes uncover a high-quality gem that has been beaten down but with the potential to stage a big turnaround.
Let's explore two magnificent stocks near a 52-week low to buy now.
1. Merck
Pharmaceutical giant Merck (MRK -0.17%) is recognized for its extensive product portfolio of more than 52 drugs covering categories like vaccines, hospital acute care, cardiology, virology, and diabetes medications. While a long history of innovation has rewarded shareholders historically, the stock has been under pressure, down 6% this year.
The weakness continued following a mixed third-quarter earnings report (for the period ended Sept. 30) where solid financial results were overshadowed by muted management guidance. In this case, Merck narrowed its forecast for annual revenue growth to a range of 6% to 7% while modestly revising the 2024 adjusted earnings per share (EPS) target lower to between $7.72 and $7.77, representing a 4% increase from the prior annual record in 2022.
The main headwind preventing even stronger growth is weak sales of the company's Gardasil vaccine against human papillomavirus (HPV) in China that management sees extending into 2025 as distributors rebalance inventories. The market is also wondering how Merck may eventually need to find a replacement for its top-selling Keytruda immunotherapy drug set to lose patent exclusivity by 2028.
Ultimately, these concerns could be overdone as Merck remains well-positioned to deliver more profitable growth through a wide drug development pipeline, including new indications for Keytruda. Even the group's smaller animal health segment is also contributing positively.
A pickup in sales from different parts of its portfolio can be a catalyst for the stock to rebound higher in 2025. Shares trading at 13 times its 2024 EPS estimate as a forward price-to-earnings (P/E) ratio may be a bargain if Merck begins to outperform its low bar of expectations to leverage earnings higher.
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2. Pfizer
Shares of Pfizer (PFE 0.23%) are currently trading 12% above their 52-week low, but still disappointing shareholders, trailing the broader market in recent years. The global blue chip biopharma company is attempting to move past the overhang of the record pandemic COVID-19 vaccine sales and earnings by convincing the market it has other growth drivers.
The good news is that recent trends have been impressive. In the third quarter (for the period ended Sept. 30), Pfizer delivered 14% revenue growth excluding contributions from its COVID-19 products through the strong performance in new products across its portfolio.
Worldwide oncology revenue is up 31% from last year, propelled by recent launches and expanded indications for therapies like Padcev, Adcetris, and Xtandi. At the same time, the COVID-19 oral therapy Paxlovid and the commercially available Comirnaty vaccine remain a big recurring business, expected to generate $10.5 billion in sales this year.
Overall, the attraction of Pfizer as an investment is its level of diversification with several different growing drug platforms. For the full year, Pfizer is guiding for firmwide revenue growth of around 7% with an EPS midpoint target of $2.85 representing a massive 55% increase from 2023.
The ability of the company to execute its long-term strategy should support consistent growth for the foreseeable future. In the meantime, shares of Pfizer offer great value trading at a forward P/E ratio of 10 alongside a 6% dividend yield. Further evidence from Pfizer that it is no longer dependent on income from COVID-19 products could be a catalyst for the stock to sustain a rally.
Final thoughts
I believe both Merck and Pfizer deserve a buy rating with an upside into 2025 and beyond. An opportunity for investors to pick up shares in these two high-quality healthcare sector leaders trading near a 52-week low is compelling. One strategy to consider is dollar-cost-averaging as a method of adding these stocks to your portfolio over time to mitigate near-term risks.
