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Oversold Stock of the Day: Merck (MRK)

Oversold Stock of the Day: Merck (MRK)

Shares of Merck (MRK) have been declining in recent sessions. It’s one of the few companies looking oversold in today’s high-flying market environment as a result. A few trends point to a move higher.

For starters, shares are getting into oversold territory. The stock’s relative strength index, or RSI, just dropped under 30, a level traditionally marking an oversold level. The last time shares saw an RSI this low, in early November, they rocketed higher. Shares are also at a price point they slid to last November as well, so this price point could prove a double-bottom for shares.

While not a fast-moving company in general, the recent drop in price also leaves the company at a large from its moving averages. A move higher is likely as a reversion to the mean.

Action to take: Trading at 12 times forward earnings and yielding 3.5 percent, shares aren’t a bad bargain here for buyers. Potential upside and income could lead to market-beating returns.

Since a rebound in the near future looks likely, however, a call option trade looks solid here as well. The April $80 call options, trading for about $0.95, are midway between the current price of shares and their prior high. Traders can likely nab mid-to-high double-digit gains in the coming weeks.