More portfolio catchup here.
Back on January 22, 2016 I added Bristol-Myers Squibb (BMY) to my Jubak Picks portfolio in a post on my subscription site JubakAM.Com.
That buy never made it to this site or to the portfolio page that acts as page of record. I’m adding it to the page today with the buy at the price on January 22, 2016.
Here’s what I wrote in my post back on January 22:
“In sell offs such as the one that ruled the first three weeks of January, investors and traders usually dispose of high risk, high momentum big winners first–along with anything that belongs to the out-of-favor sector(s) of the day. So along with crushing oil stocks and commodity stocks, this correction or bear (depending on what market you look at) has killed FANG favorites Facebook, Amazon.com, Netflix and Google (well, Alphabet) and it has pummeled biotechnology stocks. The sector as a whole was down 13.6% for 2016 before the recent rally with momentum favorites such as Incyte (INCY) down even harder–31.54% for 2016 through January 20.
Which makes high momentum stocks in biotech a favorite of mine for any recovery. Biotech stocks even get my nod as recovery winners over technology stocks. Biotech stocks are hard to understand and their research pipeline hard to evaluate so, in my experience, they tend to trade on momentum and a few scraps of news. Which means that when you get a return of confidence that coincides with a scrap of news the best of biotech stocks can take off like rockets. For example, Incyte, which I updated yesterday and which is a member of my Jubak Picks portfolio, was up 7.48% in the January 22 bounce/rally.
Of course that means that if this bounce doesn’t turn into a rally, high momentum biotechs like Incyte can fall really hard again. Incyte is a high risk, high volatility stock and it is simply too volatile for many investors–especially those that don’t have a clue about its research pipeline. I think the long-term reward justifies the short-term volatility but I can understand why a stock like this is outside the parameters of many portfolios.
For inclusion in those portfolios in the current market I’d suggest Bristol-Myers Squibb (BMY). It has many of the characteristics of a traditional Big Pharma drug company–for instance a large and diversified lineup of established drugs and a reasonably attractive 2.4% dividend–that damp volatility. (Those divestitures and patent expirations make the stock’s PE ratio and similar valuation measures largely irrelevant at the moment.) The shares were down for 2016 by 8.23% through January 21. But in recent years the company has stripped away many of its non-core products in medical imaging, wound-care, and nutrition to focus on its speciality drug business. Like many big drug companies Bristol-Myers has struggled with the loss of patent protection on big selling drugs such as anti-psychotic drug Abilify–but as a consequence of its asset sales and patent expirations it has wound up with a very concentrated but strong pipeline in immunology and cancer drugs. Both of those are extremely hot research areas for the drug industry right now.
The Big Dog here is a cancer drug Opdivo, which recorded sales of $305 million in the third quarter but which has the potential to grow to a peak of $14 billion in annual sales as it continues to add approval for other cancers. The most recent approval was for lung cancer, but Opdivo has the potential to add indications for renal, head and neck, and blood cancers.
The next big catalyst for Bristol-Myers, even bigger than the January 28 report of fourth quarter earnings, comes in May with important meetings of cancer researchers that will see the announcement of new findings on Opdivo that are likely to point to further applications of the drug. If you want to wait until we’re past this correction and closer to those meetings, I certainly understand. I’m willing to take my 2.4% yield and hold on through volatility in order to get the stock in the mid-to-low $60s. I’ll be adding it to my Jubak Picks portfolio on Monday, January 25, with a target price of $76 a share for July 2016.”
The January 22 price for this buy was $64.02. The April 8 close was $66.07. The shares got as low as $58.52 on February 2.
