Merck's Making All the Right Long-Term Moves

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Investors don't seem to be all that excited about Merck's (NYS: MRK) announcement that it'll cut up to 13,000 jobs by 2015. I'm guessing they're not all that excited by the idea that the savings will be driven back into research and development and emerging markets.

They're wrong -- or at least very short-sighted.

Unlike Pfizer (NYS: PFE) , which is cutting back on research and development, Merck has resisted pleasing investors' needs for quick and dirty earnings gains. Drug development is a long-term process, and sacrificing future revenue to increase earnings today doesn't seem like the best strategy.

Many of the jobs Merck plans to cut will be on the administrative side. When you integrate a $40 billion company, there's bound to be quite a bit of overlap. The company has already eliminated 12,500 positions since acquiring Schering-Plough, although it's hired for 6,000 new positions over that time as well.

The expanded restructuring program is expected to yield savings of $4 billion to $4.6 billion annually. That's a lot of money that can be used to buy or license new drugs from biotechs. Small companies such as BioSante Pharmaceuticals (NAS: BPAX) , Amarin (NAS: AMRN) , and Exelixis (NAS: EXEL) could all benefit from a larger pool of cash -- at least in theory.

Dividend investors might rather see that cash returned to shareholders than reinvested in the company. Looking at the long-term stock chart, they have a decent argument; shares are down 44% over the last 10 years.

But adjusted for dividends, the return over that time frame is a solid 217% increase. What's paid for all those dividends? New drug launches created by research and development.

Not convinced? Here are 13 more high-yielding stocks you can buy today.

At the time this article was published Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Exelixis. Motley Fool newsletter services have recommended buying shares of Exelixis and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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