2 low-priced growth stocks that are trading near their 52-week lows

Buying a struggling stock can be a tough decision to make. A drop could turn into a total crash, and you end up with a stock in your portfolio that’s deep in the red. But if the business itself looks strong and the fundamentals are strong, it may be worth going against the grain and holding on for the long haul.

Two stocks that are in bad shape today are Merck (NYSE: MRK) and Activision Blizzard (NASDAQ: ATVI). Both of their stocks are in the trash, but they’re still profitable, dividend-paying companies that could be good buys. Here’s why I’m optimistic they can still be great investments today.

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1. Merck

Merck quickly went from a hot buy to a buy that investors are eager to get rid of. When the company announced that it had developed a COVID-19 pill that was 50% effective in reducing the risk of serious illness or death, the future of the company was full of optimism. Merck predicts potential revenue of up to $ 7 billion next year from the pill, assuming the green light from the US Food and Drug Administration (FDA).

But then came the news that the health giant Pfizer had the same Following COVID-19 pill effective with an effectiveness rate of 89%. To make matters worse, recent data suggests that the Merck pill is really only 30% effective, and an FDA advisory committee is only narrowly in favor (by a 13-10 vote) of approval of the Merck pill. And that still doesn’t guarantee that the agency will accept and grant them emergency use authorization.

As a result, the healthcare stock has swiftly moved from a 52-week high of over $ 91 in November to just above $ 73 nowadays and is approaching its 52-week low of less than. $ 69. It was a radical turning point for action, reminding investors how volatile COVID-19 can be for companies that offer vaccines or pills whose effectiveness may be uncertain.

But investors shouldn’t forget that Merck is still a strong company even as its COVID-19 pill falters. In the past 12 months, it has reported a net profit of $ 7.2 billion on revenue of $ 52.6 billion, which is a healthy 14% margin.

Additionally, its $ 11.5 billion purchase of rare disease firm Acceleron Pharma this year will give it more scope for growth and diversification outside of its best-selling cancer drug Keytruda (which loses its exclusivity in 2028). . Keytruda generated $ 4.5 billion in revenue for the period ending September 30, accounting for more than a third of Merck’s total sales.

With strong margins and a new acquisition to bolster its finances, there are plenty of reasons to remain bullish on Merck even if its COVID-19 pill falls flat. In addition, the stock offers an attractive dividend yield of 3.8%, well above the S&P 500is 1.3% yield. For long-term investors, Merck is a solid buy.

2. Activision Blizzard

Another action that looks like a good deal today is Activision Blizzard. The company has been hit hard by extremely bad press regarding allegations of sexual assault and a negative work culture. In November, the employees, outraged by the scandal, walked out for the second time this year.

There is no doubt that the problems are serious. Poor management can weigh down a business, and the issue deserves careful monitoring as it continues to unfold. Additionally, some investors see the risk of a talent drain from the company if the issues are not addressed.

At the same time, the business remains strong with a profit margin of just under 30% of sales in the last four quarters. What I love most about Activision is the recurring revenue it generates. Three-quarters of its business comes from recurring sources, such as in-game purchases, subscriptions, and non-product sales. Its success therefore does not depend on having to release brand new products. He can simply build on the success of titles he already owns, including the Call of Duty franchise.

The biggest operational issue for the company right now has been the announcement that two of its popular games, Diablo IV and Monitoring 2, will be delayed with minimal (if any) revenue likely from these titles in 2022. But delays in the release of games and the bad press swirling around the company are ultimately short-term problems.

At around $ 59, the game’s shares are down near their 52-week lows, making it an attractive contrarian buy right now. The stocks also pay a modest 0.8% dividend. For long-term investors, this might be a reasonable move to grab now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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