For These 3 Stocks, Recent Weakness Yields Potential Opportunity

These companies reported tough numbers this past quarter. Here's why this may be a great opportunity.

Feb 11, 2014 at 9:34AM

When Pfizer (NYSE:PFE)Bristol Myers-Squibb (NYSE:BMY) and Eli Lilly reported earnings recently, all three noted that net income had declined compared to the year-ago quarter, as generic inroads on former blockbuster drugs continue to weigh on the bottom lines for each these pharmaceutical companies. Nonetheless, I see potential for future earnings growth and think that Foolish investors should watch these stocks carefully.

Pfizer continues to endure mounting costs for its major restructuring, as well as increased competition from generic competition. Indeed, this generic competition and the decline in revenue from former blockbuster drugs is hitting the company hard. Revenue was down 2% in the quarter and the signs are that it will take more time for Pfizer to address its loss of key drugs.

Putting aside the one-off items (such as restructuring costs), earnings per share would have been a more respectable $0.56 per share (rather than the $0.39 that was reported). This beat Wall Street expectations of $0.52 (excluding one-off items), yet it's still a considerable fall from the previous year. But shares bounced after the results were released and improved by as much as 5% before pulling back this week. The fact that they can make gains following a 59% fall in earnings may at first seem strange, but when the market is expecting worse then it starts to make sense.

In addition, the fact that Pfizer expects to deliver earnings growth in 2014 and 2015 despite the continued major restructuring highlights the long-term strength of the business. Indeed, the market seems willing to give the company the time it needs to address the increased generic competition that is hurting the top and bottom lines.

Of course, Pfizer isn't the only pharmaceutical company that endured a disappointing fourth quarter update. Bristol-Myers Squibb and Eli Lilly  also posted fourth quarter falls in net profit (compared to the same quarter in 2012), with both companies also suffering from the effects of increased generic competition for former blockbuster drugs.

In Bristol-Myers Squibb's case, blood thinner Plavix and blood pressure drug Avapro continue to be hit hard, while Eliquis (approved only a year ago in partnership with Pfizer) contributed just $71 million to a top line of $4.4 billion. As with Pfizer, Bristol-Myers Squibb is seeking to restructure the business, aiming to become a specialist, niche player as opposed to focusing on volume drugs.

Meanwhile, Eli Lilly saw fourth quarter net income fall by 12% as it lost patent protection for its top-selling product, the antidepressant Cymbalta. Furthermore, the bone-building drug Evista is set to come off-patent as early as next month, with these two losses expected to mean a tough year for the business.

However, it's not all doom and gloom for Pfizer, Bristol-Myers Squibb and Eli Lilly. All three companies are facing challenges but, encouragingly, they are on the path to restructuring their respective businesses to counter the difficulties posed by generic competition. Sure, it may take time for them to overcome this challenge, but the market seems comfortable with their long-term plans. Beating quarterly expectations, of course, is a good way to buy even more time and further improve sentiment.

The Motley Fool's top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Peter Stephens has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers