Buy on the dip. Most investors have heard the old saying. However, it's only good advice when a stock is likely to rebound strongly.
Three Motley Fool contributors think they've identified stocks that are great candidates to buy on the dip right now. Here's why they picked Bristol Myers Squibb (BMY 0.34%), Pfizer (PFE 0.55%), and Teva Pharmaceutical Industries (TEVA 4.23%).
Too cheap to ignore
Prosper Junior Bakiny (Bristol Myers Squibb): Every once in a while, even the most prominent biopharmaceutical companies go through a period during which they have to deal with the loss of patent exclusivity for some key products. The result is often slower or non-existent revenue growth and poor stock market performances. That's what's happening to Bristol Myers Squibb. Last year, its blockbuster cancer medicine Revlimid started facing generic competition.
So Bristol Myers' financial results haven't been great, especially given the added impact of currency exchange rate fluctuations. Further, the drugmaker's stock is down by more than 10% over the trailing-12-month period, while the S&P 500 is up almost 20%.
But all this is doing is creating an excellent entry point for investors. Bristol Myers Squibb is well equipped to turn things around thanks to its ability to develop newer and better products to replace older ones.
The company is already hard at work. Last year alone, Bristol Myers Squibb earned approval for several brand new medicines in the U.S., including plaque psoriasis medicine Sotyktu, cancer therapy Opdualag, and Camzyos, which treats a heart disease.
Other new drugs will help strengthen its portfolio. The company is awaiting approval from the U.S. Food and Drug Administration for repotrectinib, a potential cancer medicine. The agency set a PDUFA action goal date (by which time it will either approve or reject the drug) of Nov. 27.
Despite the current struggles, Bristol Myers Squibb should be more than fine over the long run. Meanwhile, the company's current forward price-to-earnings ratio of below 8x is ridiculously low compared to the pharmaceutical industry's average of 14.9. The stock looks like a steal at these levels.
More good news than meets the eye
Keith Speights (Pfizer): Sales for COVID-19 vaccine Comirnaty and antiviral therapy Paxlovid are sinking. As a result, Pfizer's overall revenue and earnings have declined significantly. It's not surprising, therefore, that the big pharma stock is down quite a bit this year.
However, I think there's more good news than meets the eye with Pfizer. For one thing, the lower share price has resulted in an attractive valuation. Pfizer stock trades at only 11.8 times expected earnings.
There also appears to be a light at the end of the tunnel for Pfizer's COVID slump. The company expects that sales of Comirnaty and Paxlovid will begin to bounce back next year. Pfizer is especially optimistic about the prospects for its combination COVID-flu vaccine that could reach the market in 2025.
Sure, the big drugmaker faces additional challenges. Several of its top products, notably including blockbusters Eliquis, Ibrance, and Vyndaqel, lose patent exclusivity within the next few years. However, Pfizer anticipates that new products launched by mid-2024 will more than offset any lost revenue.
The company could add another $25 billion or so in annual revenue from business development deals by 2030. Its planned acquisition of Seagen should go a long way toward achieving that goal.
Trading at a dirt cheap earnings multiple
David Jagielski (Teva Pharmaceutical): What's one of the best bargains in the healthcare industry right now? Teva Pharmaceutical. The leading generic drug maker in the world is trading at a significant discount with a forward earnings multiple of 3x.
Although the stock comes with some risk, it's a much safer buy now that Teva has reached a settlement on its role in the opioid crisis. The company will need to pay out over $4.3 billion in the main agreement, which covers 48 states, but those payments will be spread out over the course of 13 years. The settlement puts to bed a big uncertainty for the drugmaker.
Another reason for the stock's discount is that Teva has a high debt load of $20.7 billion as of the end of March. But that's down from $21.2 billion as of the end of last year. And with the company projecting up to $2.1 billion in free cash flow for 2023, it could have room to pay down more debt this year.
For investors, this can be a good contrarian investment to hold as Teva's business is relatively resilient with revenue during the first three months of the year totaling $3.7 billion -- unchanged from the prior-year period. It has also posted an operating profit in each of the past four quarters.
Earlier this month, Teva reached an agreement with Johnson & Johnson that would allow it to launch its Stelara biosimilar, AVT04, in the U.S. market by Feb. 21, 2025. Stelara is a huge moneymaker for Johnson & Johnson, generating just under $10 billion in revenue for the healthcare giant last year. AVT04 will provide consumers with a lower-priced alternative that could help accelerate Teva's long-term growth.
Down by a double-digit percentage year to date, Teva's stock provides some good value to investors today. This could be an underrated investment to hang on to especially if the economy enters into a recession given the stability it offers.
