Some might hesitate to invest in stocks during a bull run, like the one we are experiencing. They argue that equities are likely to be overvalued. However, it's possible to find reasonably valued picks in this environment, even among top high-quality stocks. And some can be had without having to break the bank.
For those with $500 to spare (that is, that isn't being kept aside for emergencies), let's consider two excellent corporations that are worth investing in right now: Merck(NYSE: MRK) and Novartis(NYSE: NVS).
1. Merck
Developing and selling products people's lives depend on is an excellent way to be successful in the long run. That's what Merck does. It is one of the largest pharmaceutical companies in the world, particularly known for its work in oncology. Merck's cancer drug Keytruda will be the world's top-selling medicine until it runs out of patent exclusivity in 2028. Through then, it will continue to be Merck's biggest growth driver. In the first quarter, Merck's sales of $15.8 billion grew by 9% year over year, a solid performance for a pharma giant.
Keytruda's sales were $6.9 billion (about 44% of its revenue), 20% higher than the year-ago period. There is the worry that Merck will spiral downward once Keytruda runs out of patent exclusivity. But these fears are exaggerated. The company has a long history of developing and marketing novel medicines. Its pipeline features several dozen programs and spans many different therapeutic areas. The company is already landing on some important wins.
It recently earned approval for a brand-new medicine called Winrevair that treats pulmonary arterial hypertension. According to some analysts, Winrevair's peak sales projections will be in excess of $2 billion. True, that's a drop in the bucket compared to the amount of sales Keytruda generates, but there will be many more brand-new approvals and label expansions for the drugmaker. Some of its existing products are also performing well, including its vaccine business, led by HPV vaccines Gardasil and Gardasil 9.
There is also Merck's Lynparza, another cancer medicine that is performing reasonably well. Though Merck likely won't replace Keytruda with a single product -- although it is working on a subcutaneous version that will extend its patent life in some indications -- the company's pipeline will allow it to perform well after the patent cliff.
The stock is a good pick for long-term investors, especially as it trades at a forward price-to-earnings (P/E) of 14.94 -- the averages for the healthcare industry and the S&P 500 are 18.6 and 21.6, respectively (as of July 12).
Merck's shares are trading for just under $128, so $500 is enough for three full shares.
2. Novartis
Novartis is another leading drugmaker, though the company's lineup is much more diversified than Merck's. In the first quarter, Novartis' sales came in at $11.8 billion, an increase of 11% year over year. The company's best-selling product, heart failure medicine Entresto, generated $1.9 billion in revenue, or about 16% of its total top line. In 2023, Novartis had 13 blockbusters, 10 of which grew their sales on a year-over-year basis.
Novartis is also earning important new approvals. In December, the U.S. Food and Drug Administration gave the company the license to market Fabhalta, a treatment for paroxysmal nocturnal hemoglobinuria, a rare blood disease. Sales projections for Fabhalta look strong -- some say in the neighborhood of $3.6 billion annually at its peak. Novartis also has a rich pipeline. The company recently spun off its generic and biosimilar unit into a stand-alone entity.
This business was slowing revenue growth, and tying up funds that the company thought would be better used in research and development for its faster-growing biopharmaceutical business. The move made Novartis less diversified, but it could pay off in the long run as the company focuses on developing novel therapies. Novartis' more than 100 ongoing programs will be important for the company to deliver strong financial performances and excellent returns over the long run.
Here's another perk of investing in the stock: Novartis has an excellent dividend program. The company has increased its payouts for 27 consecutive years and offers a forward yield of 3.38%. The stock trades at a forward P/E of 15.27. At $111 per share -- making $500 good enough for four full shares -- the stock can serve the needs of those looking for stable, reliable dividend-paying companies.
Should you invest $1,000 in Merck right now?
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool has a disclosure policy.
