Last week wasn’t hell for just Schering-Plough. Merck took a hit as well after a panel of expert cardiologists, more or less, trashed the two firms’ joint-venture cholesterol drugs Vytorin and Zetia. But the market might have overreacted, Cramer said, making Merck a buy.

Here’s his basic thesis: Merck’s down almost 25% for bad news from a joint venture that represents only 15% of the company’s sales. By that logic, Cramer said, Wall Street’s assuming Merck won’t make any money from Vytorin or Zetia ever again.

That doesn’t seem to be the case, though, given that new prescriptions are down, but not precipitously. Patients are still taking these drugs. The setback was a “speed bump for Merck,” Cramer said, but “the Street’s acting like [the company] just ran into a retaining wall.”

Estimates are probably way too low for Merck now, Cramer said. After this decline, he’s making MRK his number-one Dow pick. He seems to think it won’t be too long before we look back and wonder how we ever could have bought Merck at $41.

Here are a few reasons why:

* Pharma’s what you want to own during a downturn, and Merck’s 3.7% dividend should attract buyers to the stock, pushing up the share price.

* Merck has a pipeline of drugs expected to ring up $4.6 billion in sales this year.

* The company still has $5.1 billion set aside for a buyback. Merck’s management should prop up the stock – maybe even take it higher? – with this money.

Even if Merck returned to its historic valuation, the stock would jump $10 for a 25% gain. Once Wall Street realizes this company’s still standing – for good reason – despite the initial fallout of Vytorin-Zetia, that jump could happen.

“I think you want to be in Merck,” Cramer said, “before we get the counter-reaction to the market’s overreaction.”

Jim's charitable trust owns Schering-Plough.

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