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Author: TMFFuz Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5993  
Subject: Merck Date: 3/14/2000 11:42 AM
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I'm throwing out a suggestion for further consideration. First, I do not have the BI figures so I have no idea if the company is below its downside target, but it is off about 33% over the last 12 months, so I think it is worth a look. I also think that BI is only a tool that should be used to value the company, not the only factor.

The company is Merck & Co.

Why Merck?

Well, one thing value investors may want to focus on is the relevance the company has in relation to the World in which we live. Considering the aging population of America, as well as the benefits that a company like Merck provides to people around the globe, Merck is very relevant, in my opinion.

Merck is a knowledge-based company. Clearly, the shift began a long-time ago from a world where physical assets were important to where knowledge drives value in the stock market. The key to Merck's success is the ability of its employees to think up new drugs to solve old problems. If the next huge drug comes down their pipeline, it could be a multi-billion windfall for many years. Hence, investors must price in the potential for Merck to deliver the next big drug. Even if they don't, the likelihood that they could is still worth something.

R&D---Related to knowledge is R&D. R&D may be written off in the year the expense is incurred, this may overstate Merck's ROE. However, because Merck's success is based on ideas floating around in the heads of a bunch of people, Merck's' value is probably understated by using book value. Therefore, I think that Merck should trade at some premium to the BI method. So, it would be BI + X factor. I have no idea what X is, or how large it should be, but it should be there. So, if Merck were close or below its BI target, then I would say it is a definite value.

Of course, a more in-depth look at the financials would be called for as well. Also, I have not studied Merck very closely, so there could be very big reasons for the decline.

I guess then, that another factor to consider is relevance. Certainly drug companies are relevant.

Best,

John
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