As I noted in my posts over the weekend, I think that along with all the general volatility and the rotation away from high moment and higher price-to-earnings ratio technology stocks, the last week or so saw a rotation into “safe” haven stocks such as utilities and Big Pharma.
Friday saw stocks such as Prizer (PFE) and Bristol-Myers Squibb (BMY) make very solid gains on a generally down day for stocks. Pfizer was up 2.30% at the close and Bristol-Myers gained 1.61%.
Today when the market as a whole is solidly higher, the group doesn’t stand out quite so much, especially because Pfizer, like Modern (MRNA) is getting hit on uncertainty about the efficacy of its Covid-19 vaccine agains the new Omicron Variant as well as fears that maybe the company won’t reap a big windfall from the spread of the new variant because it isn’t as deadly or infectious as feared. (Wouldn’t that be nice.) Pfizer closed down 5.14% today.
Still AbVvie (ABBV) is up 2.10% today and Bristol-Myers is ahead 0.91%.
AbbVie is my favorite in the group–it does pay at 4.75% dividend which has earned it a place in my Dividend Portfolio since January 28, 2020. (The position is up 44.86% since then as of the close on December 6.)
But I already own it in that portfolio–along with Merck (MRK) and Pfizer–so if I want to increase my exposure to Big Pharma I have to look elsewhere.
Like to Bristol-Myers Squibb, which I will add to my Jubak Picks Portfolio tomorrow, December 7. I’d like to give this portfolio I little more sector diversity as well as lower its price-to-earnings profile.
Which Bristol-Myers will do since it currently trades at a forward PE of just 7.15 (and at a discount of 17% to fair value by Morningstar’s calculations. The stock is down 6.84% for 2021 to date as of December 3.)
While I hate to look a “cheap horse” in the mouth, I do always like to know why a stock is cheap before I buy. A cheap stock can, of course, remain cheap or get even cheaper.
Bristol-Myers is confronting a standard Big Pharma problem. The company is looking at a host of major patent losses over the next decade. Over the next five years, Bristol-Myers is facing the loss of patents on cancer drugs Revlimid, Sprycel, Pomalyst, and Abraxane as well as on immunology drug Orencia (close to 50% of sales). In the second half of the decade, the company is likely to lose patents on cancer drugs Opdivo and Yervoy along with cardiovascular drug Eliquis (close to one third of sales).
So there are good reasons that investors have made Bristol-Myers cheap.
But as I look at the company’s next-generation of drugs and what’s in the company’s pipeline I think Bristol-Myers has plenty of opportunity off set these patent losses. For examaple, blood disorder drug Reblozyl and rare-disease drug mMvacamten look likely to score more than $3 billion in annual peak sales. Recently launched drugs Zeposia (immunology and multiple sclerosis), Breyanzi and Abecma (CAR-T cancer drugs), and late-stage pipeline drug Deucravacitinib for psoriasis (especially if the drug receives a clean safety label) all have solid or better prospects. Cardiovascular drug Milvexian and cancer drug Iberdomide show promise to replace Eliquis and Revlimid.
Some of this pipeline came to Bristol-Myers through its acquisition of Celgene, which added major depth of Bristol-Myers portfolio of blood cancer drugs. And additional acquisition of Medarex increased the company’s strength in cancer immunotherapy, where its PD-1 cancer drug Opdivo should drive multi-billion-dollar sales annually based on solid efficacy despite intense competition from Merck’s Keytruda.
A part of its effort to replace those drugs losing patent protection over the next decade Bristol has shed its diabetes business, medical imaging group, wound-care division, and nutritional business in order to focus on higher margin drugs.
I’m adding this stock to my Jubak Picks Portfolio with a target price of $72 a share. The stock closed at $56.83 on December 6.
