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Pharmaceuticals have been high-yield names in the last few years, especially as the approaching patent expiration cliff sent share prices down to discount levels.
Merck(MRK - Get Report) has been no exception; the $133 billion pharmaceutical maker currently pays out a 3.9% dividend yield.
Merck lost patent protection on its blockbuster asthma drug Singulair this year, a big blow to the firm to be sure. But investors have been bracing for the impact of patent expirations, and strategic moves such as the 2009 acquisition of Schering-Plough give Merck the late stage pipeline it needs to help replace that revenue loss. As I write, nearly half of the firm's sales come from the domestic market. And that's a very good thing right now considering the resilience of the U.S. dollar (that effectively penalizes overseas earnings) and the impact that "Obamacare" will have on pharmaceutical volumes in the next few years.
A balance sheet that carries a nearly $3 billion net cash position gives Merck ample dry powder to get opportunistic with mergers and drug acquisitions in 2013. If the Singulair patent loss plays out to be less dramatic than anticipated, investors could lessen the discount on patent expirations going forward. That would be a very good thing for shareholders this year.
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-- Written by Jonas Elmerraji in Baltimore.