(MONEY Magazine) – When investors trashed health-care stocks earlier this year, knocking prices down an average of 14% from their January peaks, a terrific opportunity opened up. You can now buy shares in one of the world's outstanding drug companies, superstar Merck & Co. (1991 revenues: $8.6 billion), at a reasonable price. During the general rout, Merck shares, recently $49.50, fell 11%, even though the company has delivered 28% average annual earnings gains for the past five years. Why did Merck suffer along with other drug stocks? Chiefly because institutional investors were unloading growth issues so they could buy the shares of cyclical companies that are likely to lead the market as the economy strengthens. In addition, many investors had become fearful that the federal government might limit drug price increases in an effort to curb rising health costs. But if that happens, it won't do much damage to Merck. Analysts estimate that eight new drugs will help boost the company's sales 15% annually over the next five years or so, even without big price hikes. For example, two drugs now under development, Proscar for shrinking enlarged prostates and Fosamax for reducing osteoporosis, could generate sales of more than $1 billion annually by 1995. Analyst Martha Freitag of the Evergreen Funds in Purchase, N.Y. estimates that Merck's overall earnings will rise about 18% annually to $2.15 this year and $2.54 in 1993. With that growth, investment adviser Stan Trilling at Paine Webber thinks that the shares, which yield 1.9%, could reach $65 within 18 months -- for a 33% total return. -- C.W.

BOX: MERCK

Recent price $49.50 52-week range $56 to $38

Est. earnings per share P/E ratio 1992 $2.15 23.0 1993 $2.54 19.5