Value stocks, per data from June 1927 through January 2024, have topped the long-term performance scorecard versus growth by a score of 13.2% to 9.6% per annum, reports John Buckingham, editor of The Prudent Speculator.
In addition, dividend-paying stocks have outperformed non-dividend payers by a per-year tally of 10.7% to 9.0% over a similar nine-plus decades. Those return gaps are large, especially when one considers the impact of compounding over multi-year periods.
It is little wonder, then, given our multi-year time horizon, that we remain loyal to our four-plus-decade-old strategy of buying and harvesting portfolios of what we believe to be undervalued stocks, most often of dividend-paying companies.
As we cast our lines for new investment ideas, our objective is to always be fishing in a pond stocked with companies that exhibit characteristics of those that have proven over time to be better long-term performers.
That in mind, we crunch plenty of our own numbers so that we can validate the historical evidence and determine if other valuation factors are worthy of inclusion in our work. Our initial screens are only one step in our investment process, but we continue to think that Free Cash Flow Yield, EBITDA/Enterprise Value, Return on Common Equity and Return on Invested Capital are measures that add value to our quantitative analytics.
Bristol-Myers Squibb (BMY) is a global pharmaceutical company focused on drugs for cardiovascular, virology, oncology, affective disorders, immunology, metabolic and other indications. BMY has shown recent focus in expanding its neuroscience portfolio, announcing the acquisition of Karuna Therapeutics, which is developing a schizophrenia treatment.
With the stock receiving little investor affection of late (the shares are down in price by some 20% over the last year), we like the current long-term capital-appreciation potential to go along with the robust divided yield of 4.4%.
While blockbuster Revlimid has continued to feel the pressure of generics, gains for leading oncology product Opdivo and several recently launched drugs such as Camzyos (cardiomyopathy), Opdualag (melanoma), Zeposia (MS and UC) and Sotyktu (plaque psoriasis) have kept the top line afloat, with growth potential across multiple indications.
BMY — yielding 4.7% — trades for less than 8 times NTM adjusted EPS projections, which we think is much too low for a high-quality drug maker, especially as we believe the firm’s newer and upcoming drug launches are not being adequately appreciated by fickle investors.
Following its merger with Physicians Realty, Healthpeak Properties (DOC) owns, leases and manages a 52 million-square-foot real estate portfolio, with about 40 million square feet (3.7 million square meters) of outpatient medical properties concentrated in such high-growth markets as Dallas, Houston, Nashville, Phoenix and Denver.
More than half of Healthpeak’s annual rents come from tenants involved with different aspects of the life sciences space (that include biotechnology, medical device and pharmaceutical companies) with the remainder made up of outpatient medical facilities mostly on the same site with or adjacent to hospital campuses and 94% affiliated with a top regional health system.
We like the diversification and view the regional health system affiliation as favorable for the medical office footprint as patients tend to view these facilities in a premium light versus stand-alone or independent facilities. Shares have been caught up in the general turmoil for REITs, falling sharply since the end of 2021 to now trade for just 11 times the current-year projection for funds from operations. The dividend yield is also a hefty 6.4%.
Hasbro (HAS) is a designer and manufacturer of toys, games, software and infant products. Shares have encountered a difficult stretch, to say the least, and the company has responded by selling its Entertainment One film and television business in December and nominating three new board members, bringing experience from the likes of Zynga, Jack in the Box and Nexon.
Hasbro’s Chair of the Board, Rich Stoddart, said of the trio, “They bring an immeasurable amount of leadership experience working across online and mobile gaming, as well as leading storied consumer brands and franchises.”
HAS shares have gained 12% this year, which is a good start after a difficult 2023, and we think there’s plenty of additional room to run. Analysts expect 2023’s $2.51 of EPS to be a trough year, with 2024’s consensus estimate in the $3.30 range and 2026’s close to $4.50. The valuation remains reasonable and the stock yields a rich 5.0%.
