Shares of Merck & Co., Inc. (NYSE:MRK) and Monster Beverage Corp (NASDAQ:MNST) have both moved upward today thanks to bullish ratings updates by major analysts. In a note published today, BMO Capital Markets upgraded Merck & Co., Inc. to ‘Outperform’ from ‘Market Perform,’ citing the potential for the stock to have “multiple expansion”. Meanwhile, Morgan Stanley upgraded Monster Beverage Corp to ‘Overweight’ from ‘Equal Weight’ because of the attractive entry price the stock now has.
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According to BMO Capital Markets, they are now “more optimistic” of the Merck & Co., Inc. (NYSE:MRK) pipeline, saying that the execution of the company in its commercial and research & development segments has been “impressive”. The pharmaceutical firm, it said, may be on the verge of a strong five- to six-year growth cycle, with key drivers being its higher-margin specialty franchises; more specifically its Keytruda and Hep-C drugs. Moreover, BMO Capital Markets’ Alex Arfaei said that MK-8931 for Alzheimer’s disease may also prove to be a growth driver. He forecasts that the compound annual growth rate (CAGR) of revenue will be 7% to 8%, while the EPS CAGR will be about 15% in the next three-to-five years.
Meanwhile, Morgan Stanley said that the recent selling pressure on Monster Beverage Corp (NASDAQ:MNST)’s stock presents a good opportunity to buy it. The firm noted that potential stock growth may be unlocked if the firm initiates share buybacks, which it believes will happen in the fourth quarter.
As for hedge funds, Merck & Co., Inc. (NYSE:MRK) and Monster Beverage Corp (NASDAQ:MNST) have differing fates based on the smart money’s activity. Merck & Co., Inc. saw an increase in hedge fund investments in the first quarter, while Monster Beverage Corp saw the opposite. We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks returned 123.1% since then and outperformed the S&P500 Index by 65 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment. Plus, we also don’t like paying huge fees.
Taking this into consideration, let’s take a peek at the latest key hedge fund activity concerning Merck & Co., Inc. and Monster Beverage Corp.
