Please ensure Javascript is enabled for purposes of website accessibility

Is Teva Pharmaceutical Industries Limited Stock a Bargain?

By George Budwell – Updated Apr 18, 2019 at 8:27PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Teva's shares were unfairly punished last month.

What happened

December turned out to be a historically turbulent month for big-pharma stocks, and generic-drug king Teva Pharmaceutical Industries Limited (TEVA -1.60%) was no exception. In fact, Teva's shares fell by a whopping 28.4% over the course of December, according to data from S&P Global Market Intelligence.

What drove this marked decline? Teva, like most of its biopharma peers, sank because of the market's overall downturn last month, as well as Johnson & Johnson's (JNJ 0.11%) so-called baby powder controversy.

Person in a suit holding a toy bear in one hand and a toy bull in the other.

Image Source: Getty Images.

So what

The fact that Teva's shares were punished mightily for J&J's troubles -- even though this alleged scandal has no bearing on Teva's outlook whatsoever -- shows just how moody the market was last month. In turn, bargain hunters have apparently started to take note of this unwarranted sell-off, causing the drugmaker's shares to rise by a healthy 19% over the first two weeks of the new year.

Despite this double-digit rally in early 2019, however, Teva's shares are still among the cheapest in the large-cap pharma space. At current levels, for instance, Teva's stock sports a rock-bottom price-to-sales ratio of 1.02.

Now what

Should investors take advantage of Teva's dirt-cheap valuation this year? The answer to this question is arguably a resounding yes. Teva's new management team has done a stellar job at trimming the fat and getting the company's debt problem under control over the last year. These efforts have thus attracted sizable investments from blue-chip investors, such as Warren Buffett. All told, Teva's days of cellar dwelling seem to be close to an end, making now a perfect time to buy this deeply undervalued pharma stock.

Check out the latest Teva Pharmaceutical earnings call transcript.

George Budwell owns shares of Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson and has the following options: short January 2019 $140 calls on Johnson & Johnson. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.