The 2022 bear market has been a sight to behold. The benchmark S&P 500, which is widely viewed as a leading indicator of U.S. stock performance, has dipped by a hefty 14.6% this year. What's more, the Dow Jones Industrial Average, another highly regarded barometer of U.S. stock performance, has slumped by 11.5% year to date. Worse still, the tech-heavy Nasdaq Composite Index has cratered 22% in 2022 thus far, putting this bellwhether growth stock index firmly in bear market territory.
U.S. stocks, on balance, have steadily moved lower this year in response to a negative feedback loop consisting of rampant inflation, rising interest rates, and growing fears that a recession may be on the horizon. Within the confines of the U.S. stock market, these three key headwinds have put a spotlight on companies with rock solid free cash flow, elite managerial teams, and businesses that are largely recession-proof. Healthcare giant Bristol Myers Squibb (BMY -0.36%) is a prime example of Wall Street's sudden renewed interest in these long-forgotten core tenants of stock picking.
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Bristol's shares have soared while markets have swooned
Bristol Myers Squibb is an oddball of sorts. While healthcare stocks in general, and biopharmaceutical stocks in particular, were flying high from the start of 2020 until three-quarters of the way through 2021, Bristol's shares were barely in positive territory during this period. Fleshing this point out, Bristol's stock was up by a modest 2.52% from January 2020 until the start of fourth quarter of 2021, while the SPDR S&P Biotech ETF, a closely followed gauge of biopharma stock performance, soared by a staggering 42% over this same period.
Bristol's stock lagged behind its peer group during this portion of the biopharma bull market over concerns about its looming battle with the patent cliff. The company's three biggest revenue generators -- Eliquis, Revlimid, and Opdivo -- are all set to lose patent protection over the course the decade. Moreover, Bristol's $74 billion acquisition of Celgene, while helping to diversify its pipeline and solidifying its position in the high-margin cancer space, significantly increased its debt-to-equity ratio. A highly levered balance sheet, combined with the threat of key patent losses, apparently wasn't an enticing combo for investors from 2020 to late 2021.
Bristol's stock, however, has become a favorite among investors during the ongoing bear market. While the SPDR S&P Biotech ETF has lost 21.4% this year, Bristol's shares have marched higher by a healthy 12.5% year to date. In fact, the drugmaker's stock isn't that far off of its 52-week high at the time of this writing.
Bristol's strong fundamentals are key to its turnaround
What's changed? Not a whole lot, frankly. Although Bristol has had some key wins with the approvals of the heart drug Camzyos and the skin cancer medicine Opdualag, the company still hasn't racked up enough regulatory victories to offset the headwinds emanating from these patent losses. Bristol, in short, will need some of its recent business development activities, such as the acquisition of Turning Point Therapeutics, to hit the mark in order to put these threats to bed, once and for all.
Investor sentiment has nonetheless sharply rebounded. The long and short of it is that Bristol's stock has ticked up this year due to its appeal as a defensive play. After all, despite the loss of patent protection for the top-selling cancer meds Abraxane and Revlimid in recent times, Bristol's top line is still on the rise, and this upward trend is projected to continue over the course of 2023.
What's more, the drugmaker pays out a respectable 3.21% dividend yield on an annualized basis right now. Perhaps most importantly, though, Bristol's business is largely insulated from these macroeconomic headwinds. Cancer patients aren't going to forgo treatment simply because the gross domestic product is contracting inside the United States and Europe. Very few of Bristol's peers in the S&P 500 index sport that kind of resiliency.
So with the bear market expected to persist until there are clear signs the Federal Reserve is winning its battle against inflation, Bristol's stock will likely remain a favorite safe haven for investors. Armed with this insight, the pharma titan's shares appear destined to hit a new 52-week high sometime soon.
