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Buckingham's Value Picks in Healthcare

12/11/2019 5:00 am EST


John Buckingham

Editor, The Prudent Speculator

Geopolitical developments are a wild card, but we remain optimistic about the long-term prospects of our broadly diversified portfolios of what we believe to be undervalued stocks, asserts John Buckingham, value-oriented money manager and editor of The Prudent Speculator.

We respect that the gains thus far in 2019 are above average and that pullbacks, corrections and Bear Markets are an inevitable part of the investment process, but we like that valuations remain reasonable, while investor sentiment is hardly euphoric and both seasonality and the Presidential Cycle are favorable.

Bristol-Myers Squibb (BMY)

Bristol is a global pharma company focused on discovering, developing, licensing and marketing drugs for cardiovascular, virology, oncology, affective disorders, immunology, metabolic and other indications.

Shares have rebounded nicely in recent months, but still change hands at attractive valuation metrics, likely because of concerns over some pending patent losses, the perceived growth dependence on cancer drug Opdivo and cardiovascular drug Eliquis, and the increased debt load from its just-closed purchase of biotech firm Celgene.

While there are near-term operational and integration headwinds to navigate, we like that a large portion of Bristol’s late-stage pipeline focuses on immunology and cancer indications, areas with favorable pricing and where the FDA has been aggressively approving drugs.

BMY has a heritage of supporting its pipeline by bringing in partners to share the development costs and diversify the risks of clinical and regulatory failure, while we like that the Celgene acquisition moves Bristol further into the specialty pharma segment. High-quality BMY shares currently yield 2.9%.

Gilead Sciences (GILD)

Gilead is a biotech giant whose portfolio of products and pipeline of investigational drugs include treatments for HIV/AIDS, liver diseases, cancer, inflammatory and respiratory diseases, and cardiovascular conditions.

GILD delivered solid numbers for Q3, which saw its first year-over-year revenue growth in three years, driven by strength in the HIV portfolio (sales growth of 13%), even as there was continued deceleration in hepatitis drug revenue.

While better trends are not on the horizon for the company’s HCV franchise, we think its pipeline potential in oncology and NASH medications, as well as HIV post-exposure prophylaxis treatments, could be the tailwind shares need to regain some of their glory.

We continue to be constructive on the solid balance sheet that allows management to search for acquisitions, buy back shares and support the dividend. GILD trades for less than 10 times NTM estimated earnings and yields 3.7%.

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