Bristol-Myers Squibb Co (NYSE:BMY) stock has been an absolute mess the past few months — down a staggering 33% from its early-August high around $75. Still, the company boasts solid fundamentals, which has some investors wondering if this dip is worth buying into.
BMY stock’s latest issue arrived when rival Merck & Co., Inc. (NYSE:MRK) released positive clinical trial results for a type of lung cancer treatment.
Shares of BMY were crushed because it is developing a similar drug for the same type of cancer and the first to market will be the major winner. With the news hitting the market this past weekend, MRK officially has the lead and this hurts BMY’s prospects.
Click to Enlarge In fact, it sent BMY stock down 10% to its lowest level since 2014. The chart is in clear breakdown mode after its second major plunge in the past three months.
BMY first collapsed on Aug. 5, falling 16% after poor results for a cancer drug. The negative news kicked off a freefall from which the stock has yet to recover.
There’s another factor hurting BMY, too: Now that Hillary Clinton has taken a commanding lead in the polls, her rhetoric of being harsh on drug pricing has put a black cloud over the entire sector. The iShares Dow Jones US Pharm Indx (ETF) (NYSEARCA:IHE), which tracks the Dow Jones Pharmaceutical Index, closed at a fresh three-month low Wednesday.
At this point, buying into BMY stock would be trying to catch a falling knife.
The only logical plan is to wait for the sector to bottom out, then see how BMY is reacting. If it’s also building a base, that could be the opportunity to get in at a low price. Personally, I’d buy in a little higher rather than trying to pick a bottom.
There is still great long-term value in BMY stock given its solid cancer drug pipeline, but shares can become oversold for months before the true fundamentals are reflected in the stock price.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.