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Are These Warren Buffett Stocks a Buy at Beaten-Down Prices?

By George Budwell - Mar 23, 2020 at 9:27AM

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Biogen, Johnson & Johnson, and Teva Pharmaceutical Industries are all way too cheap right now.

Warren Buffett's holding company Berkshire Hathaway (BRK.A 3.75%) (BRK.B 4.02%) has been able to produce jaw-dropping gains for its shareholders over the years by adhering to three basic principles:

  1. Buy high-quality companies with strong brand recognition, healthy balance sheets, and a well-established competitive moat. These types of companies can better handle economic downturns and even periods of poor management. 
  2. Buy stocks with the expectation of holding them for no less than a decade, if not longer. 
  3. The best time to load up on stocks is when everyone else is selling. As Buffett himself puts it, "The best chance to deploy capital is when things are going down." 
Picture of Warren Buffett at an event.

Warren Buffett. Image source: The Motley Fool.

But even Berkshire Hathaway hasn't been able to escape the ravages of the marketwide meltdown over the COVID-19 coronavirus. This indiscriminate wave of selling, though, is undoubtedly creating some once-in-a-lifetime buying opportunities for patient investors. Within Warren Buffett's own portfolio, for instance, the healthcare giants Biogen (BIIB 0.26%), Johnson & Johnson (JNJ 1.46%), and Teva Pharmaceutical Industries (TEVA 0.91%) all appear to be trading at bargain basement prices after their steep declines over the past few weeks. Here's why. 

Biogen: A super-cheap large-cap biotech

Biogen is a leader in the treatment of multiple sclerosis and spinal muscular atrophy, and in the development of cheaper versions of biologically based therapies, known as biosimilars. Additionally, the biotech is developing several high-value clinical assets for hard-to-treat neurodegenerative disorders such as Alzheimer's disease and Parkinson's disease. Further down the line, Biogen also has designs on becoming a major player in the red-hot field of gene therapy, evinced by its acquisition of Nightstar Therapeutics and recent partnering deal with Sangamo Therapeutics.

At last count, the company had approximately $4.5 billion in cash and a fairly reasonable debt-to-equity ratio of 48.2. Since the biotech doesn't have to worry about covering a dividend and its revenue stream should be more or less immune to the COVID-19 threat, Biogen should thus have little trouble weathering this ongoing public health and economic crisis. Biogen, in effect, is a prototypical Buffett stock in many ways.

Should investors buy this blue chip biotech in the wake of its 6% decline in 2020? Biogen's near-term outlook is undoubtedly closely tied to the prospects of its high-risk Alzheimer's disease candidate aducanumab. That being said, the company does have some truly exciting early stage assets under development following its recent business development activities, as well as an overall healthy balance sheet and a stable near-term outlook. Those are all highly prized commodities for long-term investors, especially in this turbulent market. As such, bargain hunters might want to consider this top biotech stock soon.  

Johnson & Johnson: A rock-solid dividend you can count on

J&J's shares have fallen by almost 18% in 2020. This giant of the healthcare landscape is thus trading at just 3.5 times next year's sales, and its dividend has ballooned to a handsome 3.17% yield after this sizable pullback.

Investors appear to be worried that J&J's consumer healthcare segment, which sells baby powder, Band-Aids, and skin and hair care products, among many others, may take a major hit from the COVID-19 economic downturn. Perhaps it will, but it's hard to imagine J&J's consumer healthcare sales dipping to the point that would justify a nearly $80 billion drop in the company's market capitalization since the start of the year. 

The big picture is that J&J has one of the strongest balance sheets in the entire corporate world, it is a Dividend Aristocrat with over a half-century of consecutive dividend increases, and it has been a cornerstone of the American healthcare landscape for over 130 years. This isn't J&J's first economic crisis, and it won't be the company's last by a long shot.

J&J will survive COVID-19, perhaps with only minor dings to its core businesses. So do yourself a favor financially and buy J&J's stock on this unprecedented pullback. You will probably never have this chance to buy the shares at these rock-bottom levels ever again.  

Teva: A stupid-cheap generic drugmaker

Teva is one of the world's largest generic drugmakers. So far in 2020, the company's stock has lost around a quarter of its value, thanks to a combination of the marketwide sell-off and several self-inflicted wounds. For instance, Teva was recently involved in a multistate opioid lawsuit, its balance sheet sports a large amount of debt, and it has yet to bring a new flagship medication to market in the years since Copaxone went generic. But there is a light at the end of the tunnel.

CEO Kare Schultz has done an admirable job of slashing costs, reducing debt, and putting the company on track to generate at least modest levels of top-line growth in the years ahead. So even though the drugmaker isn't posting top-notch levels of growth and its balance sheet still needs a lot of work, Teva at least is no longer at risk of going bankrupt. Prior to Schultz taking the helm, Teva was in serious danger of folding.

Why should investors take a leap of faith on this comeback story? Teva's stock has arguably fallen too hard, too fast. The company's shares are now trading at a dirt-cheap price-to-sales ratio of 0.44. That's distressed-asset levels. Because Teva should return to growth as soon as next year and its underlying fundamentals have slowly improved, this Warren Buffett stock arguably warrants a place in any value-oriented portfolio right now.     

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$182.29 (1.46%) $2.63
Biogen Inc. Stock Quote
Biogen Inc.
BIIB
$211.93 (0.26%) $0.55
Teva Pharmaceutical Industries Limited Stock Quote
Teva Pharmaceutical Industries Limited
TEVA
$7.74 (0.91%) $0.07
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$417,401.43 (3.75%) $15,101.43
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$278.28 (4.02%) $10.76
Sangamo Therapeutics Stock Quote
Sangamo Therapeutics
SGMO
$4.31 (-1.37%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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