Zhongyuan Jun's "Recommendation, What Do You Think?" Part 2, updated July 14

Merck (MRK NYSE)

Target price 105 dollars

Merck is a major American pharmaceutical company. It discovers, develops, manufactures, and sells medicines, vaccines, animal health products, and consumer care products. It brands in the fields of cardiology and diabetes, cancer, bone and respiratory, dermatology and ophthalmology, infectious diseases, central nervous system, and women’s health. It offers vaccines and preventive medicines for pets. It handles antihistamines like Claritin and laxatives like Miralax. It is a member of both the Dow Jones Industrial Average and the S&P 500. Headquarters: Lowes, New Jersey.

Market cap 236,696,150 thousand dollars (as of 7/12); issued shares 2,528,805,025 (as of 7/12)

P/E (trailing) 18.14x (20:04) P/B (trailing) 6.19x (20:04)

EPS (trailing) 5.16 (2021/12) BPS (trailing) 15.11 (2021/12)

• COVID-19 therapeutics

U.S. pharmaceutical giant Merck on July 9 announced that if the U.S. authorities approve its new COVID-19 treatment, the government will procure about 1.7 million doses for about $1.2 billion. Merck’s oral antiviral drug “Molnupiravir” is intended to be administered early in infection to prevent progression of symptoms. It works similarly to Tamiflu for influenza. Merck is currently conducting a global clinical trial involving 1,850 patients, administering the drug twice daily for five days to assess efficacy. Results are expected in the fall. If efficacy is confirmed, Merck intends to apply for emergency use authorization in the second half of the year. Initially, Merck had been pursuing COVID-19 vaccine development but abandoned it in January after results were not favorable. It is now focusing on therapeutics.

It has been disclosed that Merck is in talks to acquire the cancer drug-focused peer Cytokinetics. The Wall Street Journal reported on the 6th. The deal could reach $40 billion (about 5.4 trillion yen).

Merck has proposed an offer of more than $200 per share for Cytokinetics. The prior closing price on the 5th was $176. According to the Journal, the two companies are negotiating with the aim of wrapping up talks within a few weeks, but a final agreement may not be reached. Cytokinetics, founded in the late 1990s, posted about $1.6 billion in revenue for the 2021 full year, focusing on oncology drugs. With Merck already holding major cancer therapies such as Keytruda, the acquisition would expand Merck’s cancer drug portfolio.The stock has a very long history, making cycle analysis feasible. It consists of a valid 12-year cycle subdivided into a 4-year cycle and a 6-year cycle subdivided into two parts. The pattern forms in three phases 75% of the time and two phases 25% of the time, roughly two-thirds in three-phase and one-third in two-phase patterns. The prior peak was 92.19 in November 2000, but it briefly breached in June and as of July 12 has again reached new highs. In this weak overall market environment, new drug launches and potential M&A can be strong catalysts, and the stock remains attractively valued in the pharmaceutical sector.Seen in a shorter monthly view, the 12-year cycle starting March 2009 can be interpreted in two ways: bottom in March 2020 or bottom in March 2021. If March 2020 is the bottom, the first 16-month cycle bottoms in September 2021, and we are currently in the 10th month of the second 16-month cycle. If March 2021 is the start, we are in the 16th month of the first 16-month cycle. If March 2020 is the bottom, there is still a little time for an increase to continue. If March 2021 is the bottom, a decline could occur at any time. The dominant weekly patterns divide the year into thirds across 17 weeks ±3 weeks or two parts across 26 weeks ±5 weeks. From the week of February 22, 2022 to the week of June 13, 2022 is 16 weeks, with a new PC (price cycle) in its fourth week and still room for upside. If a 26-week pattern is taken, it would be at 20 weeks already, suggesting a peak may be near. Given prices are near the high, judgment is difficult, but a breakout would be the decisive factor (if a full breakout does not occur, the cycle is considered to reverse and fall).Close at or above $96 is a condition:Target prices are ① 100 ② 105 ③ 111.【Nakahara Shun Profile】“Weekly Nakahara Shun Report” written every Monday.His grandfather made his fortune in Sony and his mother in Pioneer, coming from a family of speculators.With more than 20 years in the markets, he is a well-known real trader who is knowledgeable about the strategies of Larry Williams and Tom DeMark. The “Gann Theory” remains a largely exclusive part of his investing method, with many Gann seminars in the United States requiring high tuition. Nakahara is one of the few Gann theory researchers in Japan who have attended those seminars. He is also known for rarely appearing in public.

Merck has proposed an offer of more than $200 per share for Cytokinetics. The prior closing price on the 5th was $176. According to the Journal, the two companies are negotiating with the aim of wrapping up talks within a few weeks, but a final agreement may not be reached. Cytokinetics, founded in the late 1990s, posted about $1.6 billion in revenue for the 2021 full year, focusing on oncology drugs. With Merck already holding major cancer therapies such as Keytruda, the acquisition would expand Merck’s cancer drug portfolio.

The stock has a very long history, making cycle analysis feasible. It consists of a valid 12-year cycle subdivided into a 4-year cycle and a 6-year cycle subdivided into two parts. The pattern forms in three phases 75% of the time and two phases 25% of the time, roughly two-thirds in three-phase and one-third in two-phase patterns. The prior peak was 92.19 in November 2000, but it briefly breached in June and as of July 12 has again reached new highs. In this weak overall market environment, new drug launches and potential M&A can be strong catalysts, and the stock remains attractively valued in the pharmaceutical sector.

Seen in a shorter monthly view, the 12-year cycle starting March 2009 can be interpreted in two ways: bottom in March 2020 or bottom in March 2021. If March 2020 is the bottom, the first 16-month cycle bottoms in September 2021, and we are currently in the 10th month of the second 16-month cycle. If March 2021 is the start, we are in the 16th month of the first 16-month cycle. If March 2020 is the bottom, there is still a little time for an increase to continue. If March 2021 is the bottom, a decline could occur at any time. The dominant weekly patterns divide the year into thirds across 17 weeks ±3 weeks or two parts across 26 weeks ±5 weeks. From the week of February 22, 2022 to the week of June 13, 2022 is 16 weeks, with a new PC (price cycle) in its fourth week and still room for upside. If a 26-week pattern is taken, it would be at 20 weeks already, suggesting a peak may be near. Given prices are near the high, judgment is difficult, but a breakout would be the decisive factor (if a full breakout does not occur, the cycle is considered to reverse and fall).

Close at or above $96 is a condition:

Target prices are ① 100 ② 105 ③ 111.

【Nakahara Shun Profile】

“Weekly Nakahara Shun Report” written every Monday.

His grandfather made his fortune in Sony and his mother in Pioneer, coming from a family of speculators.

With more than 20 years in the markets, he is a well-known real trader who is knowledgeable about the strategies of Larry Williams and Tom DeMark. The “Gann Theory” remains a largely exclusive part of his investing method, with many Gann seminars in the United States requiring high tuition. Nakahara is one of the few Gann theory researchers in Japan who have attended those seminars. He is also known for rarely appearing in public.