NEW YORK (TheStreet) -- With shares of Johnson & Johnson (JNJ - Get Report), Pfizer (PFE - Get Report) and Bristol-Myers Squibb (BMY - Get Report) all trading at near 52-week highs, there aren't many bargains left in the Big Pharma space. While I do believe Merck's (MRK - Get Report) pipeline struggles and expiring patents are valid concerns, the valuation has nonetheless become enticing, even if the expected returns might be low.

Before we dive into Merck's recent results, there's a reason why the company hasn't been invited to the Street's yearlong "drug party." While Merck does have -- what I believe to be -- an underrated portfolio of effective drugs, not all of them are doing equal work. Instead, over the past couple of quarters, the company has relied primarily on Singulair, its blockbuster once-a-day asthma drug, which at one point generated $5.5 billion in annual revenue.

Unfortunately, during that span, worldwide sales of Singulair have sputtered. What's more, as competition for Singulair has increased, cheaper-priced generic alternatives to some of Merck's other top-selling drugs, like Propecia and Clarinex, have been under attack due mostly to expiring patents, which opened the floodgates to copycat versions.

Smelling Merck's blood, rivals like Pfizer and GlaxoSmithKline (GSK - Get Report) have positioned themselves to exploit the weakness and steal share. Even so, I believe if Merck's management holds firm to its promise of delivering near-term growth through licensing deals and/or acquisitions, these shares may be undervalued to their long-term potential. But if Merck's recent earnings serve as an indication, it's going to take some time.

Unlike most, I tend to look at Merck's results -- as underwhelming as they may appear -- with more of a "glass half full" view. While it's true that third-quarter revenues were down 4% year-over-year to $11 billion, I see it as a 7% improvement from the 11% decline in the July quarter. Likewise, when breaking down the company's segmental performance, I noticed a similar pattern.

Pharmaceutical sales were down 4% to $9.5 billion, which was significantly impaired by a 53% decline in sales for Singulair. This, however, is not a surprise. As I've noted, the drug, whose patent expired last year has been on a consistent decline. What was a surprise, however, was the sequential improvement in overall pharmaceutical performance, which posted a 12% decline in the July quarter. Here, too, management posted an 8% improvement.

Among the biggest gainers was Remicade, the drug used to treat Crohn's disease and rheumatoid arthritis, which grew 17% year over year to $574 million. Not to be outdone, the human papillomavirus vaccine Gardasil grew impressively at 15% to $665 million. It wasn't all good news, however. Sales of type-2 diabetes drug Januvia, which grew 5% in the July quarter, gave back all those gains this quarter.

I think at this point, it's safe to say that Johnson & Johnson's rival drug Invokana, which has been on the market for only a few months, is doing some damage to Januvia and has stolen some market share in areas like the U.S. and Japan, given that these were where Merck took the biggest hits. If not for the better-than-expected growth in areas like Europe and emerging markets, Januvia likely would not have posted any gains at all.

From an operational perspective, though, I believe Merck's management deserves an apology from the Street. There have always been concerns regarding the company's financial position, especially recently. Many of these concerns are still cited today as reasons to avoid the stock.

While Merck did report a 7% decline in third-quarter profits, the company's 92 cents per share was enough to beat consensus estimates by 4 cents. Not to mention, the profit decline, which coincided with a 1.2% decline in gross margins, was due to expenses-related charges such as restructuring costs, acquisitions and other one-time items.

I do realize that I've become somewhat of a Merck apologist. But the company's position is not as bad as what has been portrayed. I will grant that the weakness in the pipeline and the expiring of several patents are legitimate near-term threats. But Merck is trading virtually on no growth assumptions at all.

Plus with close to $20 billion in cash on the balance sheet, Merck is one key acquisition away from turning its fortunes around. With the stock trading at around $46 per share, I would be adding Merck as part of a long-term position, while also collecting one of the best dividend yields in the sector at 3.70%

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.