A couple of weeks ago, I revealed an opportunity to pick up one of the world’s largest drug manufacturers Bristol-Myers Squibb (BMY) due to a recent 20% stock price plunge from a failed final stage lung cancer treatment trial.
The time to accumulate BMY stock is finally getting close as volume seems to remain high and a valid support level of $58 seems to be where other value investors are coming into pick up BMY on the cheap.
It’s been two weeks and nothing fundamental about the company has changed. So let’s re-visit this opportunity again.
The following is what makes me want to add Bristol-Myers Squibb to my long-term portfolio over the coming days. I have initiated a small 0.5% position in BMY and have been waiting for the reversal from a support which has finally occurred.
One must be patient to avoid ‘catching the falling knife’ by waiting for strong price reversals and therefore be willing to give up a little bit of the gain.
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.
Forecast Return on Equity (ROE) of over 25%.
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 other Bristol Myers drugs which are still huge revenue generators and will continue to do so going forward.
Technical Factors;
The Bad
The $70 key price support level has been broken.
Price is currently below both 20, 50 and 200 day moving averages.
The Good
There seems to be strong price support at the $58 price level.
The stock is oversold on a variety of momentum indicators and buying volume is above average over the past two weeks.
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 – 5.2% of portfolio managed
Spiro Segalas – 2.5% of portfolio managed
Conclusion
Just over a week ago, I had already initiated a small 0.5% position in BMY when I spoke of buying into this stock. The recent reversal from a strong $58 price support, added with above average volume over the past two weeks, suggest value managers like me are adding to their holdings.
As long as strong buying volume continues, I will be personally adding more Bristol Myers into our long-term portfolio over the coming days and weeks. You may want to have a look into such an opportunity also.
To see how you can easily and safely identify undervalued leading stocks like BMY, click here.
