We recently published a list of the 10 Innovative Healthcare Stocks to Watch in 2025. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other innovative healthcare stocks to watch in 2025.

In the US, healthcare costs and prices have been increasing. According to the Centers for Medicare & Medicaid Services, U.S. healthcare spending increased 7.5% from 2022 to $4.9 trillion in 2023. In 2023, the healthcare industry made up 17.6% of the US economy, an increase of 17.4% from 2022. The growth of Medicare and private health insurance is the two leading causes of this increase.

Impact of Tariffs on the US Healthcare Industry and China Relations

The impact of tariffs on this continuing trend has become a significant bone of contention in the healthcare industry as more and more US corporations turn to China for agreements on the next breakthrough chemical, whether in the areas of obesity or cancer. Carlo Rizzuto, managing director of Versant Ventures, spoke on CNBC’s “Fast Money” on February 7 about the impact of tariffs on healthcare. Rizzuto says that tariffs may impact the sector in two ways. Products made in China and sold in the US or other countries would be the first. The industry would need to watch how the tariffs are used in the market to comprehend how they would impact such trade operations.

Second, and more precisely, the US healthcare industry relies heavily on China as a basis for contract production and research. Consequently, anything that raises that price is probably going to make the market more difficult. Cost hikes won’t help the healthcare industry’s management, which is already under pressure from investors.

Speaking on China’s enormous impact in the pharmaceutical and healthcare sectors, Rizzuto said that the vast majority of healthcare companies use a Chinese CRO or manufacturing partner in some capacity during the research and development phase. As a result, it significantly affects how the nation’s biotech and pharmaceutical industries function. This trend is rather common in businesses of all sizes.

In other words, the lack of infrastructure to facilitate the transfer prevents healthcare corporations from reshoring all of their externalized R&D and production to the United States. Therefore, it is hard to imagine how such a large-scale reshoring might occur. The amount of tariffs imposed can be used to determine the expenses of achieving this objective linearly.

According to McKinsey, healthcare EBITDA will rise from a starting point of $676 billion in 2023 to $987 billion in 2028 at a 7% CAGR. Recovery from post-pandemic lows is anticipated to spur progress in several areas, even though development is anticipated to be faster in some (such as specialized pharmacy and HST). Software platforms are essential to the healthcare ecosystem because they let payers and providers operate more effectively in a complex environment.

By automating procedures, fostering data connectivity, and producing actionable insights, technological innovation (such as generative AI and machine learning) keeps providing opportunities for stakeholders from all industries. McKinsey predicts that increased utilization and pipeline expansion (as in cancer) will result in a considerable increase in specialty pharmacy income. Specialty pharmacy profit pools are continuing to grow as a result of the rise in the use of specialty medications.

Our Methodology 

For this article, we began by screening the top holdings of the iShares U.S. Healthcare ETF (IYH) to focus on prominent companies within the U.S. healthcare sector. From this list, we selected the top 10 holdings based on their weight in the ETF portfolio. We then ranked these stocks according to the number of hedge funds holding positions in each company as of Q4 2024, based on data from Insider Monkey’s hedge fund tracking database.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Merck & Co., Inc. (NYSE:MRK)

Number of Hedge Fund Holders: 91

Merck & Co., Inc. (NYSE:MRK) is a biopharmaceutical company that delivers health solutions to advance the treatment and prevention of diseases in animals and people. Vaccines and pharmaceutical goods for human health, which usually include therapeutic and preventive substances, are available through its pharmaceutical section. Its Animal Health division creates, finds, produces, and sells a variety of vaccinations and veterinary medications.

Merck & Co., Inc. (NYSE:MRK)’s sales outlook is being adversely affected by certain factors. For example, because of low discretionary spending, it has temporarily halted the distribution of its HPV vaccine, Gardasil, to China until the middle of 2025. The business maintains excellent operations despite these short-term difficulties, which are bolstered by high demand for its inventive and varied portfolio. The company’s Keytruda cancer treatment medication is doing well, and the introduction of Winrevair, a medication for pulmonary arterial hypertension (PAH), is also helping to increase revenue growth.

Asad Haider, a Goldman Sachs analyst, remained optimistic about the stock and rated it as a Buy on April 8. The analyst feels that Merck & Co., Inc. (NYSE:MRK)’s Animal Health division, which makes a substantial amount of money and is expected to expand in the future, is being undervalued by the present market valuation, which is unduly gloomy. The analyst believes that this offers investors a mispricing opportunity.

Overall MRK ranks 7th among the innovative healthcare stocks to watch in 2025. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.