Merck & Co. (MRK): A Contrarian Value Play in Ken Fisher’s Defensive Strategy

Ken Fisher’s contrarian investing philosophy—rooted in data-driven, counter-cyclical bets—has long sought out companies with durable fundamentals, low volatility, and asymmetric risk-reward profiles. Merck & Co. (MRK), a pharmaceutical giant with a 135-year legacy, has emerged as a key holding in Fisher’s portfolio, particularly as a defensive equity in an era of market turbulence. With its robust cash flows, steady dividend, and exposure to high-growth oncology therapies, Merck fits neatly into Fisher’s strategy of identifying underappreciated value stocks poised to outperform during periods of economic uncertainty.

The Case for Merck as a Defensive Value Stock

Merck’s appeal lies in its low beta of 0.45, a measure of its stock price volatility relative to the broader market. This defensive characteristic, combined with a 3.98% dividend yield, positions it as a “bond proxy” for portfolios seeking stability. Fisher Asset Management’s Q4 2024 13F filing highlighted Merck as a top-50 holding, valued at $1.77 billion—0.7684% of its $229.85 billion portfolio. This reflects Fisher’s belief in Merck’s ability to generate consistent returns even amid macroeconomic headwinds.

At the core of Merck’s performance is its blockbuster cancer drug, Keytruda (pembrolizumab), which contributed $29.5 billion in sales in 2024, up 18% year-over-year. This growth, fueled by expanding indications in lung, liver, and head/neck cancers, has become a pillar of Merck’s revenue, now accounting for nearly 40% of total sales. Despite facing generic competition in older drug categories like Singulair (asthma), Merck’s R&D pipeline—spanning immuno-oncology, diabetes, and infectious diseases—ensures long-term resilience.

Fisher’s Portfolio Activity: A Strategic Rebalance, Not a Sell Signal

While Merck’s portfolio weight dipped slightly to 0.7684% in Q1 2025 from 0.8548% in Q3 2024, the reduction of $145 million in holdings should be contextualized within Fisher’s broader strategy. The Q1 filing revealed that Fisher trimmed positions in 344 stocks, focusing on 10 key holdings—including Merck—to reallocate capital toward undervalued opportunities. The Merck stake, however, remains substantial, retaining 16 million shares valued at $1.77 billion, underscoring its enduring appeal.

The stock’s 7% year-over-year revenue growth in Q4 2024, coupled with a 12% dividend yield premium to the S&P 500, reinforces its value proposition. Even as Fisher reduced his stake, Merck’s valuation—trading at 15.2x forward earnings, below its 5-year average of 16.5x—suggests further upside potential.

Key Risks and Opportunities

1. Patent Expirations: Keytruda’s U.S. exclusivity ends in 2032, but its global patent protection and label expansions in emerging markets provide a cushion.
2. Regulatory and Pricing Pressures: Rising scrutiny of drug pricing could compress margins, though Merck’s diversified revenue streams mitigate this risk.
3. Pipeline Execution: Success of late-stage candidates, such as isatuximab (multiple myeloma) and MK-0616 (diabetes), is critical to sustaining growth.

Conclusion: A Steady Hand in Volatile Markets

Merck’s inclusion in Fisher’s portfolio reflects a disciplined focus on value, safety, and cash flow. Despite the Q1 trimming—a routine rebalancing rather than a vote of no confidence—the stock’s defensive traits, dividend yield, and growth catalysts (Keytruda, pipeline innovation) justify its status as a core holding. With a debt-to-equity ratio of 0.3x and $12.3 billion in cash, Merck is well-positioned to navigate near-term challenges while compounding returns for long-term investors.

As Fisher’s Q1 filing notes, Merck’s 3.98% dividend yield outperforms the 10-year Treasury’s 4.2% yield by a narrow margin, but its growth profile offers equity-like upside. For investors prioritizing stability without sacrificing growth, Merck remains a compelling contrarian play—a stock that aligns with Fisher’s creed: “Buy when others are selling, but only after doing your homework.”

Final Note: While Merck’s Q1 position trimming warrants monitoring, its strategic importance in Fisher’s portfolio is undeniable. With a fortress balance sheet and a drug portfolio driving double-digit sales growth, Merck exemplifies the “value with growth” thesis that has long defined Fisher’s success.