It looks like factors outside the market are distracting investors from the fundamentals; indeed, the earnings report from Bristol-Myers Squibb (BMY) might best encapsulate the market's mood right now, suggests Todd Shaver, editor of Bull Market Report.
The trailing numbers were spectacular with revenue coming in a hair below our forecast (but still enough to support our 10% growth hopes) while profit was substantially better than expected.
On that basis, Bristol-Myers is doing extremely well, with both the top and bottom line expanding twice as fast as the market as a whole.
Business is booming. Costs are stable. And oncology drugs already account for 65% of all sales and are growing at least 25% a year, more than enough to make up for slowing franchises elsewhere in the company.
Management's outlook remains solid. They're looking for roughly $4.15 a share in profit this year, about what we expected. Overall sales growth might come in as much as 2% below our 7% target, but there's room there for upside surprises.
However, while the market initially applauded these numbers as proof that Bristol-Myers is a great company, the elation ebbed when people started fixating on the company's decision to pull an FDA application in order to collect more convincing data from an ongoing trial. We're not alarmed by this.
If management thinks they can produce evidence that lung cancer patients live longer on a combination of Bristol-Myers drugs, it's probably better to make sure the regulators have the most compelling argument available.
And since that data won't be available until sometime between now and the end of June, it's better to pull the application instead of running the risk that the FDA will make up its mind before better facts come in.
Bristol-Myers needs this application to win approval.
That's an understatement. So much energy on Wall Street is wrapped up in making sure this company can expand its oncology franchise and fend off competitors in lung cancer in particular.
We'd rather they raise the odds of approval even if it means waiting another few months to resubmit the application and then another year for the FDA to review.
In the meantime, we're looking at a multiple below 11X earnings here and a yield of 3.8% to reward you while you wait for satisfaction. We've waited almost three years for Bristol-Myers to prove itself.
One way or another, that patience will either be rewarded soon or we'll find the best place to exit. And remember, we're also getting Celgene biotech programs here once that $75 billion merger closes.