Why Bristol-Myers is a great buy
The DailyDividend Newsletter is free for all to read. I send this to my audience weekly, sometimes more often!. If you would like to receive these in your email every week, join the many investors in subscribing today! Share it with your friends if you think this is something they’d enjoy as well!
Please head over to my substack to get email notifications whenever I post!
Bristol Myers is one of the oldest pharmaceutical companies here in the United States. They are best known for their products known to combat cancer, HIV/AIDS, heart disease, diabetes, and so much more. However, the companies earnings over the past few decades have stayed either flat or climbed slightly lower as it didn’t fully adapt to where the industry was headed, that has changed. A few years ago Bristol-Myers announced its acquisition of the biotechnology company Celgene which enabled them to catch-up in the transition from traditional pharmaceuticals to biotechnology.
Now, why is Bristol-Myers a screaming buy right now? For that, we would need to go over how investors analyze these health-care companies. When looking to put money to work in this sector, we usually take a look at what is known as a drug-pipeline. This gives the investor a clear time-horizon of a company on its potential to generate earnings from the present, to the long-term. We also have to look at the patent market for these drugs. Patenting a drug is probably the second most important step for a company to take after creating and releasing this drug to market. A patent filing gives investors even greater information and clarity on the earnings potential in the forward years. If we look at Bristol-Myers drug Revlimid, it is currently the second most revenue-generating drug in the present, and will most definitely stay there for the coming years. But the drug by itself is not what has attracted me to the stock, it is the current valuation and the potential upside should the market re-value it at what they usually have throughout its long-tenured history. I always tell myself, “its a market of stocks, not a stock market”.
If we look at where the market has overvalued BMY, it has been overvalued for almost 8 years. Due to an earnings spike from their 2 drugs Eliquis and Revlimid, these drugs generate almost 20 billion for the company. I can see the stock is currently at a point of undervaluation based on revenue estimates as well as future earnings in relation to traditional valuation and market valuations of the company over time.
How does this relate to dividends? That’s a great question, pharmaceutical companies are great income and dividend growth stocks like investors. In just the past 6 months, we have seen major companies with increasing revenues increase the dividend. The big blue-chip examples include: Merck, Pfizer, Abbvie, Amgen, and of course Bristol Myers. I believe this is the beginning of a string of huge double-digit, or close high single-digit dividend increases for investors. In an era where investors believe inflation will shoot above 2%, Bristol-Myers is a great way to protect your wealth.
In summary, the positive combination of a robust pipeline and revenue stream, as well as its dominant emergence in the BioTech space with its acquisition of Celgene, make it a screaming buy at the current levels. In a market where most equities are overpriced by most if not all valuation metrics, BMY is a great place to possibly be out of the market over the next few years in total return. Just for reference, if you buy the stock now and it corrects back to what the market usually values it at you can expect returns annualized at 132% and 58% annualized over the 2 or 3 years respectively. Even if the stock only corrects to a normal P/E of around 15, we can expect returns of over 83% and or 42% annualized over a 2 or 3-year span. In a market where the upside seems somewhat limited, value plays ensure we can beat out the market time and time again.
