The Pharma Flea Market

You know what reminds me of those garage sales where some young couple sells their grandmother’s antique furniture for $20 because they think it’s old junk? That’s exactly what’s happening with Bristol-Myers Squibb (BMY) right now, and frankly, it’s driving me nuts watching all this perfectly good money get tossed aside.

I was having lunch with my old trading buddy Bob last week – guy’s been in the business since Nixon was in office – and he started griping about how these young analysts wouldn’t know a real turnaround story if it bit them on their skinny-jean-wearing behinds. He’s got a point.

They’re all chasing the latest artificial intelligence darling or electric vehicle pipe dream while completely ignoring what’s happening right under their noses at one of America’s pharmaceutical workhorses.

Bristol-Myers just pulled off something that should have had every serious investor paying attention, but instead, crickets.

Their growth portfolio revenue finally overtook their legacy business for the first time: $6.6 billion versus $5.7 billion.

Now, before your grandson starts explaining why that doesn’t matter because it’s not a cryptocurrency, let me tell you why this is actually a very big deal.

For the past few years, BMY has been getting ignored. Everyone knew their blockbuster drugs were losing patent protection – Revlimid, Pomalyst, the whole gang.

Wall Street did what it always does when it spots trouble ahead: sold first, asked questions never. But what all those whip-smart MBA analysts missed is that the company was quietly building an entirely new business behind the scenes.

BMY’s oncology pipeline started doing something that pharmaceutical companies dream about but rarely achieve – it actually started helping people and making money at the same time.

Opdivo grew 7% year-over-year, Yervoy jumped 16%, and suddenly we’re looking at a completely different animal than the one everyone wrote off.

Now, I’ve been analyzing pharmaceutical stocks since before most of these analysts were born, and I can tell you that real turnaround stories are incredibly rare. But this one has the genuine feel of a company that’s figured out how to replace yesterday’s revenue with tomorrow’s growth.

The oncology market isn’t going anywhere except up, and BMY is positioning themselves right in the sweet spot.

Then we get to the valuation, which is where this whole story becomes downright insulting to anyone with half a brain. BMY trades at roughly seven times forward earnings while the industry average sits around 18. That’s the kind of price gap that makes you wonder if the market has completely lost its collective mind.

Think about it this way: if you walked into a car dealership and they offered to sell you a perfectly good Cadillac for the price of a used Corolla, you’d probably wonder what was wrong with it.

But sometimes, just sometimes, there’s nothing wrong except that everyone’s too busy looking at the flashy sports cars to notice the value sitting right there in the showroom.

The dividend story should appeal to anyone who remembers when companies actually rewarded shareholders for their patience. They’re paying out over 5% annually, backed by 17 consecutive years of increases and 35 years of uninterrupted payments.

That’s the kind of track record our fathers would have called “solid as a rock” before everything became about quick flips and day trading nonsense.

Of course, this isn’t some guaranteed money machine disguised as a pharmaceutical company.

They’re carrying substantial debt that could become problematic if interest rates decide to camp out at current levels longer than anyone expects. The growth portfolio needs to keep executing, because any major setbacks in clinical trials could send this stock back to the financial equivalent of the discount bin.

But here’s what I find compelling about this whole situation: the patent cliff everyone’s worried about is already visible from space.

These things don’t sneak up on you like a surprise tax bill. The market has already beaten this stock down for problems that are largely known quantities.

Meanwhile, the company just raised its revenue guidance for the year, management is investing heavily in research while competitors are cutting back, and they’re positioning themselves for the next wave of pharmaceutical innovation, like they actually know what they’re doing.

Bob always says the best deals happen when sellers don’t know what they’re selling. Right now, Wall Street is having its own garage sale with Bristol-Myers Squibb, and they’ve priced this particular item like it’s headed for the donation pile.

Smart money knows when to show up early with cash in hand.