Top Picks 2020: Bristol-Myers Squibb (BMY)

01/17/2020 5:00 am EST


Charles Carlson

Editor, DRIP Investor

With politicians on both sides of the aisle calling for drug price controls, and a number of the Democratic candidates calling for “Medicare for all,” it has been a challenging environment for a host of medical sectors, suggests income expert Chuck Carlson, editor of DRIP Investor.

However, you can often find good value in such segments, and Bristol-Myers Squibb (BMY) is a shining example of that value. The stock is a Top Pick recommendation for total return.

Bristol-Myers Squibb has a number of factors in its favor, not the least of which is solid revenue and earnings growth potential over the next 12 months, an attractive dividend yield of nearly 3%, and a potential kicker in its recent acquisition of Celgene.

Bristol-Myers Squibb is a leading provider of pharmaceuticals. Leading brands include Opdivo, Eliquis, Plavix, Orencia, and Yervoy. Revenues will grow sharply with the addition of Celgene.

The addition of Celgene will push annual revenues over $40 billion and give the combined company the number one position in oncology and cardiovascular drugs. Celgene will bring onboard a decent new-product pipeline, which increases the opportunities for finding the next blockbuster drug.

Bristol-Myers Squibb shares trade for just 10 times the 2020 earnings estimate, so investors aren’t paying much for the expected growth.

Bristol-Myers is taking on a big chunk of debt to pay for the Celgene deal. Despite the increased debt load, the company just raised its dividend approximately 10%, indicating the firm is fairly confident in its future.

Bristol-Myers stock traded in the low $70s in 2018 and was a $77 stock as recently as 2016. I think expected appreciation in the 10%-15% range plus a nearly 3% dividend yield sets up for a nice total return in 2020.

The stock has shown much better price action in recent months, and I expect these shares to outperform the market over the next year. Please note Bristol-Myers Squibb offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company.

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