Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified

Merck

(

MRK

) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Merck as such a stock due to the following factors:

  • MRK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $498.8 million.
  • MRK has traded 9.0 million shares today.
  • MRK is trading at 1.65 times the normal volume for the stock at this time of day.
  • MRK crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on MRK:

Merck & Co., Inc. provides health care solutions worldwide. The stock currently has a dividend yield of 3.2%. MRK has a PE ratio of 15. Currently there are 6 analysts that rate Merck a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for Merck has been 9.3 million shares per day over the past 30 days. Merck has a market cap of $161.0 billion and is part of the health care sector and drugs industry. The stock has a beta of 0.37 and a short float of 1% with 3.47 days to cover. Shares are up 1.3% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Merck as a

buy

. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • The debt-to-equity ratio is somewhat low, currently at 0.63, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.09, which illustrates the ability to avoid short-term cash problems.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, MERCK & CO's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for MERCK & CO is currently very high, coming in at 94.01%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 10.11% trails the industry average.
  • MRK, with its decline in revenue, slightly underperformed the industry average of 4.5%. Since the same quarter one year prior, revenues slightly dropped by 8.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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