Clearly, there is plenty about which to be concerned these days, but there are always things to fret over — and we would argue that a significant amount of bad news is “in” equity prices, notes John Buckingham, value oriented money manager and editor of The Prudent Speculator.
Although the past is no guarantee of the future, we think looking at what has taken place historically can provide some tranquility for those who share our long-term time horizon.
After all, value stocks have done well when inflation previously has been above 8%. To be sure, we must be braced for additional downside in the near term, but we think long-term-oriented investors should be opting to be greedy while others are fearful.
Shares of Bristol Myers Squibb (BMY) recently rose on news that the FDA had approved its drug Sotyktu (deucravacitinib) for the treatment of moderate-to-severe plaque psoriasis. The jump was enough to reverse declines over the past month, but gains were shed as shifting sentiment took hold of the overall market.
The safety profile and efficacy for Sotyktu are expected to put pressure on Amgen (AMGN), whose Otezla showed in a phase 3 trial that the former helped patients achieve 75% more skin clearance than the latter. “There is no doubt in our minds that this is the right drug…There’s absolutely no remorse,” BMY’s Chief Medical Officer recently said in an interview about selling Otezla to Amgen when Bristol bought Celgene in 2019.
Street analysts were quick to note the lack of a black box warning for the Bristol drug, which is notable given safety concerns have plagued other autoimmune drugs.
BMY shares trade for less than 9 times the 2023 consensus analyst EPS forecast even as the stock has been an outperformer year-to-date. Bristol has a heritage of supporting its pipeline by bringing in partners to share the development costs and diversify the risks of clinical and regulatory failure, and the acquisition of Celgene moved Bristol further into the specialty pharma segment.
Recent FDA approval of respective cancer and heart failure drugs Opdualag and Camzyos, along with new approvals for current drug Opdivo, are solid strides to not just offset losses from multiple myeloma drug Revlimid, which has lost patent protection starting this year, but to continue to grow the top line. The dividend yield is 3.0% and our target price for BMY is $102.
Meanwhile, AMGN shares fell on the news, although the biotech received some good news of its own when new data suggested a new lung-cancer pill (Lumakras) beat out chemotherapy, which is the current treatment." Wall Street currently projects the drug will generate $1 billion of sales by 2025, though it’s more expensive than chemo (albeit with reportedly fewer side effects), and a major target is second-line indications.
Despite the pressure on Otezla and accelerating competition for Enbrel expected in the next one to two years, we are patient while Amgen works through its pipeline of promising oncology drugs.
In the meantime, newer osteoporosis drug Evenity and asthma drug Tezspire also should support modest revenue growth. Amgen shares trade for a reasonable 13 times next 12 month EPS and sport a 3.4% dividend yield. Our target price is $301.
