Is It Too Late to Buy Costco or Merck? Are These Defensive Stocks Overbought?

By Trey Thoelcke Published Apr 7, 10:05AM EDT

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Costco (COST) trades at a forward P/E of 50x with an RSI well below overbought levels, supported by fiscal Q2 revenue growth of 9.22% and 22.6% digital comparable sales growth, while Merck (MRK) cooled from an RSI of 77 and generated $8.4B in Keytruda revenue despite a one-time $3.65 per share acquisition charge.
Neither stock is technically overbought despite significant year-to-date gains, though Costco’s expensive valuation requires patience at support levels while Merck’s pipeline catalysts and depressed forward earnings offer more fundamental upside.

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Is It Too Late to Buy Costco or Merck? Are These Defensive Stocks Overbought? — © Bet_Noire / iStock via Getty Images

Two stocks retirement investors typically reach for in uncertain markets have risen notably in recent months. Costco Wholesale (NASDAQ: COST | COST Price Prediction) is up 18.1% year to date, while Merck (NYSE: MRK) rose 14.8% since the start of the year, including 4.4% in the past month. The verdict on each is different.

Costco: Premium Valuation, Premium Business

Costco trades at a trailing P/E of 53x and a forward P/E of 50x, multiples that have historically made value investors flinch. The stock climbed from $844 in December 2025 to over $1,018 on last look. At first glance, that looks like a stock priced for perfection.

The technicals tell a more nuanced story. The weekly RSI of 58.95 is well below the overbought threshold of 70, and the stock has not exceeded 62.35 RSI so far in 2026, far below the peak RSI of 85.70 seen in early 2024. Bollinger Bands show the stock traded above the upper band for eight consecutive weeks, reflecting sustained momentum rather than a blow-off top.

The fundamentals justify the premium. In fiscal Q2 2026, Costco posted revenue of $69.60 billion, up 9.22% year over year, with net income rising 13.81% and membership fee income jumping 13.6% to $1.355 billion. The 89.7% worldwide renewal rate and 22.6% digital comparable sales growth confirm the membership flywheel is intact. The mean analyst price target of $1,067.59 is above the current price, and the consensus recommendation is to buy shares.

Costco is not cheap, and it never is. The run has not outpaced the business, but the current price is stretched. The 50-day moving average of $989 represents a potential support level to watch.

Merck: The Run Has Real Legs

Merck’s move is more dramatic. The stock climbed from below $83 in early November 2025 to about $124 in March 2026, before the recent pause. The weekly RSI hit 77 in mid-February 2026 before cooling to 68.33, approaching but not yet back in extreme territory.

The valuation is complicated by a one-time charge. The trailing P/E is 17x, but the forward P/E of 24x reflects a roughly $3.65 per share Cidara acquisition charge depressing 2026 EPS guidance to $5.00–$5.15. Strip that charge out and underlying earnings power looks considerably stronger.

The catalyst pipeline is active. Keytruda generated $8.4 billion in Q4 2025, up 7% year over year, and Winrevair surged 133% to $467 million in the same period. A Winrevair label expansion has a PDUFA date of September 21, 2026, and a Keytruda/Padcev combination for muscle-invasive bladder cancer has a PDUFA date of April 7, 2026. The analyst consensus target of $128.59 implies additional upside, and 18 of 29 analysts rate it a Buy or Strong Buy with zero Sell ratings.

The risks include Keytruda’s looming patent cliff, a collapse in Gardasil China revenue, and the non-GAAP tax rate is rising to 23.5% to 24.5% in 2026 from 14.4% in 2025. The run is justified by improving fundamentals and a rich near-term pipeline, but the stock is not a chase. The tax headwind and Keytruda concentration risk are key factors for investors to weigh.

Verdict: Momentum vs. Overextension

Despite their significant year-to-date gains, neither stock is technically overbought in a way that suggests an immediate collapse, though their entry points differ in quality. Costco remains a classic momentum play; while its valuation is undeniably steep, its RSI of 58.95 indicates the rally is supported by steady institutional buying rather than speculative exhaustion, making it a “hold” for current owners or a “buy on dips” toward its $989 support level.

Merck, conversely, has successfully cooled from extreme RSI levels of 77 down to a healthier level, effectively resetting its technical clock. Because Merck’s forward P/E is artificially inflated by a one-time acquisition charge and its pipeline catalysts—including today’s PDUFA date—remain active, it offers more fundamental “room to run.”

For retirement investors, it isn’t necessarily too late to buy, but the “easy money” has been made; success now depends on Costco maintaining its membership flywheel and Merck navigating its 2026 tax headwinds and the 2028 patent cliff.

About the Author Trey Thoelcke →

Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.

Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community. He previously oversaw the 24/7 Climate Insights site, managing editorial operations and content strategy, and currently oversees and creates content for My Investing News.

Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.

Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, overseeing a long-running critique group and moderating workshop sessions at regional conventions. He lives with his family in an old house in the Midwest.