Bristol Myers Squibb (NYSE: BMY) is a big drugmaker recently trading at a bargain price – with a forward-looking price-to-earnings (P/E) ratio in the single digits. A key reason for this low valuation is that the company faces the prospect of sales declines beginning in 2022, when generic versions of its blockbuster drug Revlimid start being available.
BMS deserves investors’ attention, though: Its current lineup includes multiple blockbuster stars, including the blood thinner Eliquis, cancer immunotherapy Opdivo and multiple myeloma drug Pomalyst. Its newer drugs should soon begin to kick in significant sales, especially multiple sclerosis therapy Zeposia and anemia drug Reblozyl.
The pipeline is also loaded with potential winners. The company hopes to significantly expand the number of Opdivo’s approved indications. It’s evaluating Zeposia in late-stage studies targeting Crohn’s disease and ulcerative colitis. The company also has promising cancer cell therapies in ide-cel and liso-cel, plus other solid candidates.
Wall Street analysts think Bristol Myers Squibb will deliver average annual earnings growth of more than 20% over the next five years. Add to that growth the drugmaker’s dividend (recently yielding nearly 3%), and you have a stock likely to be a big winner for long-term investors. (The Procurement Nation owns shares of and has recommended Bristol Myers Squibb.)
Ask the Fool
Q. Can you explain why shares of Tesla sank 21% on Sept. 8? I read that it was because the company wasn’t added to the S&P 500 index, but it’s not like anything really happened to the business. – G.B., Shaker Heights, Ohio
A. You’re right – whether the company is or isn’t an S&P 500 index component doesn’t change its business or its prospects. When a company gets added to the index, though, the many index funds that track that index will need to grab shares of the company – and some investors might be buying shares ahead of the add, expecting that index-fund buying to propel the shares up some more. The expectation of inclusion had been baked into Tesla’s shares. When that didn’t happen, many shares were sold, sending the price down.
Over the long run, a stock’s price tends to move along with its changing intrinsic value, but over the short term, it’s often subject to the impulses of investors. As Warren Buffett has noted, “In the short run, the market is a voting machine, but in the long run it is a weighing machine.”
Q. What are the prevailing capital gains tax rates? – F.W., Portland
A. It depends on how much you earn. Long-term gains, from assets held for more than a year, are taxed at 15% for many people. Those with lower earnings pay 0%, though, and those with higher incomes pay 20%. Short-term gains (from assets held for a year or less) are taxed at your ordinary income tax rate.
Note that if you have capital losses, you can use them to offset your gains and reduce your tax bill.
My smartest investment
My smartest investment was buying shares of Netflix when they fell from something like $250 to $50 per share – and hanging onto almost all of the shares for a 35-bagger. I ended up with an investment worth 35 times what I paid for it. – D.D., online
The Fool responds: Netflix has been a terrific investment for many investors, but to end up with a 35-bagger, they would have had to hang on through a lot of sharp drops – which you did. It can be hard to do that over many years, especially when a company makes a move that causes you to question its future potential.
Netflix stock took a big hit, for example, when it announced it was raising prices, splitting its DVD and streaming businesses and dubbing the DVD business “Qwikster.” That plan was scuttled relatively “qwikly,” but not before Netflix revealed that it had lost more than 800,000 subscribers, sending shares tumbling by a whopping 35%.
You were smart to invest in the company when shares had dropped significantly.
Not every fallen stock will recover, but many do. When you find one and your research suggests that negative sentiments are overblown, it can be good to buy shares and then hang on, keeping a close eye on the company’s developments. As Buffett has noted, it’s good to be fearful when others are greedy and greedy when others are fearful.