Bristol-Myers Squibb (BMY) was once a must-hold pharmaceutical/healthcare stock. Today, it’s a no-growth laggard that does generate good cash flow and a 2.7% yield.
The perception of safety is what drives investors to this stock, and the 2.7% yield isn’t gigantic, but decent enough for a retirement portfolio. The problem is that everyone has bought in using the same criteria, and the stock trades well above any reasonable valuation.
Earnings are expected to fall 12% this year, recover next year and allegedly grow at 10% thereafter. However, even giving the company a 25% premium for having cash and investments equal to debt and generating lots of free cash flow, I see no more than a 13x valuation, or $21 on this year’s earnings.
BMY trades at $53.