When people see a greater than 20% stock price plunge, they panic. Whereas value growth investors like me, salivate. A 20% plunge in one of the world’s biggest pharmaceuticals Bristol-Myers Squibb (BMY) in the past week is definitely an opportunity.
Sometimes its hard to go against the crowd, and also accept being criticized at times for my thinking, especially after writing about Apple (AAPL) and Microsoft (MSFT) recently when they were both in the doldrums. These are bargains which ‘real’ investors don’t ever want to miss, and if you had simply invested in them at the time, you would be pleased they have gained over 10-15% capital growth in just a few months.
As long-term investors, these are the opportunities we patiently wait for.
The following is what makes me want to add Bristol-Myers Squibb to my long-term portfolio over the coming days. I am yet to hold any position in BMY as I have been waiting for moments like this, which happen more often than one thinks.
Please note, I am both a long-term deep value investor as well as a medium-term trader who utilizes the combination of both fundamental, technical and macro analysis to form a view of every investment I make. Doing so I believe leads to low risk and superior market beating returns over the long run.
Fundamental Factors;
The Bad
Bristol-Myers Squibb has suffered a set-back on one of its recent lung cancer treatment drug (Opdivo) trials, and hence the dramatic stock price drop.
Earnings per share (EPS) has been weak for the past 5 years but is forecast to increase.
The Good
Intrinsic valuation of $50-$60 (approx.), so BMY is currently at fair value after the recent price drop. It is far better to pay a fair price for a great company, than pay a wonderful price for a sub-par company, as Buffett would say.
Return on Equity (ROE) of over 15% is satisfactory and forecast to grow.
Long-term cash flow relative to reported profits is strong.
Bristol-Myers Squibb has a long term funding surplus.
There seems to be a total disregard of the suite of Bristol Myers’s other drugs which are still huge revenue generators and will continue to do so going forward.
Technical Factors;
The Bad
Recently broken below the $70 key price support level.
Currently below both 20, 50 and 200 day moving averages.
The Good
The stock is oversold on a variety of momentum indicators and buying volume is above average over the past few days.
It is likely that value seeking fund managers like myself will take advantage of a pharmaceutical giant now on sale.
Other Factors
For longer-term investments, I generally like to see who else is on-board with me and where the smart money has found its home.
In my opinion, actions always speak louder than words. Bristol-Myers Squibb is widely held stock by smart money.
Samuel Isaly – 5.6% of portfolio managed
Ronald Muhlenkamp – 5.5% of portfolio managed
Spiro Segalas – 2.5% of portfolio managed
Conclusion
The recent 20% price fall in Bristol-Myers Squibb has brought the stock back to fair value for a fundamentally strong global pharmaceutical company with smart money support.
Of course there is always the probability that Bristol-Myers Squibb may drop a little further but I will be personally initiating BMY into our long-term portfolio over the next few days when volume of the stock exceeds normal levels and there is price reversal evident to confirm ongoing buying demand.
Be greedy when others are fearful and fearful when others are greedy. This is the time to be greedy.
To see how you can easily and safely identify undervalued leading stocks like BMY, click here.
