Bristol-Myers Squibb
But, while I panned Eli Lilly earlier in the week, I think Bristol-Myers is a better buy for one major reason: its resources.
Company |
Market Cap |
Revenue |
Cash and Short-Term Investments |
Long-Term Investments |
Total Investments |
---|---|---|---|---|---|
Bristol-Myers Squibb |
$43.5 |
$19.3 |
$6.8 |
$3.0 |
$9.8 |
Eli Lilly |
$38.9 |
$22.3 |
$4.8 |
$1.1 |
$5.9 |
Source: Capital IQ, a division of Standard & Poor's. All amounts in billions.
You can do a lot with an extra $4 billion
Bristol-Myers built up it's nearly $10 billion nest egg by selling off its non-pharmaceutical assets and spinning off its baby formula business, Mead Johnson Nutrition
Now Bristol-Myers just needs to deploy some of that capital to help deaden the blow from the loss of Plavix. License a few drugs; maybe buy another development-stage drugmaker or two. There are a lot of options to stocking the pipeline when you have that much cash on hand. As long as Bristol-Myers Squibb doesn't buy a company large enough to justify adding another hyphen to its name, investors should be confident that the company has a chance at growing post-Plavix.
Putting money in management's hands
The downside to investing in Bristol-Myers is that you're essentially asking management to put your money to work. For each dollar you invest, nearly a quarter is just sitting there in short- and long-term investments, waiting to be deployed.
Not every drug Bristol-Myers licenses is going to be a success; it just gave back a drug to Exelixis
But let's face it: You're putting your investment in management's hands no matter what company you buy. Many aren't as dependent on external deals for growth, but management still has to execute in order for a company to prosper.
Willing to wait?
It's going to take a while. The company laid out its post-Plavix plan for investors earlier this year with earnings per share guidance for 2013 somewhere between last year's earnings and what Bristol-Myers is expecting to earn this year.
We may see the P/E increase a little from where it is now -- 11.4 times the middle of this year's expected earnings -- but not until investors are sure the bottom-line growth is on track. Without much total earnings growth expected over the next three years, capital appreciation may be hard to come by in the near term.
Fortunately there's a nice dividend that's paying you 5.1% of the share price to wait for a time when capital appreciation might be possible. The dividend is by no means guaranteed, but if Bristol-Myers invests its fortunes correctly, it should have enough cash flow to pay a dividend after Plavix falls from its pedestal.
With a 5% return, it would take a while to get to a 10-bagger, but in this market, slow and steady sure looks good. If the market falls further, the dividend yield should help Bristol-Myers keep from getting swept up with the crowd.