Zeev - MRK is at $48 not $40
At $40, perhaps it's a different story. But even then, I met with a very good buy-side analyst who believes from here, MRK could have as much as 25%-30% downside and that the bad news is not all in the stock, despite that fact that there are many who obviously believe it is.
Bottom line, the only way you'd want to buy MRK over its peers is if you thought the discount was greater than the comparative competitive gap by which they trail. Yes, they probably still have mid-single digit standing in sales infrastructure, but that only reinforces the folly of trying to measure MRK on historical averages and ranges -- MRK is not the same company with the same growth prospects today as it was when those parameters were being set. They are never going to have the margins they once did because they are not going to produce from R&D the way they once did. They will have to split profitability out of their pipeline with those who actually "invent" the drugs and whom they cut co-marketing deals with.
IMO, the historic low p/e does should not be viewed as a "bargain" because it will return to its historic median. That median was set in a time of higher profitability and the range of the future is not the range of the past. More importantly, seemingly low p/es aren't "wrong" if the "e" isn't growing, or worse, is subject to potential future shrinkage.
If I had to own old-line pharma, MRK at at 15% discount from where it is now, would be an inferior investment to PFE at a 15% discount from where it is now. Or Roche or ... well, I could go on, but that's the point.
I'm not writing MRK off, btw, just saying, IMO, it's a comparatively poorer place for investment $$ than some of its peers.
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