Merck Sold from the Fat Pitch Financials Port

Today I closed out one of the most controversial positions in the Fat Pitch Financials Portfolio, Merck (MRK). The 5,000 shares of Merck held in the Fat Pitch Financials Portfolio at Marketocracy were sold today for $56.00. I just got an email indicating that the 5,000 shares were sold at a net average price of $55.956 including commissions and fees.

I originally added these Merck shares to the Fat Pitch Financials Port way back in October 4th of 2004.  I bought those shares for an average price of $34.29 after simulated commissions and fees.  That means the value of my Merck shares climbed by 63% in the three years that I owned the shares.  That’s a 17.2% compound annual growth rate.  This performance does not include the dividends I also earned over this time period.  The dividends likely add another few percentages to the final result.  Marketocracy is reporting a total return of 74% for Merck, which probably also includes dividends. (Marketocracy will produce more detailed return statistics tomorrow, and I’ll add them here.)

I sold Merck primarily because the margin of safety is no longer there for this stock.  Merck has a P/E of 22.7 now and the market no longer seems concerned about the threat of massive liabilities associated with the Vioxx recall.  Pfizer (PFE), my other major drug holding is much more reasonably priced with a trailing P/E of just 11.3. There is also another major drug company that holds a lot of great brands that I’m considering for my portfolio. Given this potential opportunity and several others, I’m going to practice active value investing by selling fully valued stocks and replace them with fat pitch opportunities.

Disclosure: I no longer own shares of Merck.

2 thoughts on “Merck Sold from the Fat Pitch Financials Port

  • November 7, 2007 at 9:09 pm

    I have to agree that MRK no longer looks like a bargain. The pe and peg multiples for that stock are not conducive to much higher prices at this point I don’t believe.

  • November 8, 2007 at 12:38 am

    Hi Aaron,
    It looks like for once my sell decision was timely. MRK closed today down 1.79 at $54.20.

    I got the final return figures on my trade today. My total return on Merck including dividends was 76.89%. I crunched the numbers and discovered my internal rate of return for MRK was 21.2%. I’ll post the details shortly.

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