Equity markets can be volatile, erratic, and not always entirely rational. That sometimes results in shares of companies not being adequately priced. And when these stocks trade for less than they're worth, it creates a perfect opportunity for investors to acquire them at a discount.
If you're looking for corporations that seem attractively valued right now, here are two that fit the bill: Bristol Myers Squibb(NYSE: BMY) and Pfizer(NYSE: PFE). These two healthcare giants are excellent dividend stocks, too. Let's dig in.
1. Bristol Myers Squibb
Over the past year, Bristol Myers Squibb has lagged the stock market. One factor behind the company's poor performance is its slow, sometimes nonexistent, revenue growth throughout the past few quarters. Bristol Myers lost patent exclusivity for one of its formerly best-selling medicines early last year, which explains the struggling top line.
But there is a silver lining. The drugmaker is trading at a forward price-to-earnings (P/E) ratio of 8. By comparison, the average for the pharmaceutical industry is 15.3. So, by this popular metric, Bristol Myers looks attractively valued, especially considering the company has the tools to bounce back.
Lately, Bristol Myers Squibb has been expanding its portfolio of newer medicines, and over time they should fill the gap left by older ones that have lost or will soon lose patent exclusivity. During the past three years, the drug giant has added nine brand-new drugs to its portfolio. These medicines should see their sales grow at a good clip for a while before they run into patent cliffs.
By 2025, the company expects between $10 billion and $13 billion in revenue from its new product portfolio. Last year, the company recorded about $2 billion in sales from these drugs. And Bristol Myers Squibb won't stop innovating. The company is currently testing more than 50 clinical compounds across dozens and dozens of clinical trials.
In addition to its innovative potential and reasonable valuation, Bristol Myers has a strong dividend profile. The company currently offers a yield of 3.5% compared to the S&P 500's average of 1.5%. It has also increased its payouts by 43% over the past five years. And with a cash payout ratio of about 42%, there's plenty of room for it to continue doing the same for the foreseeable future.
For all these reasons, Bristol Myers Squibb is an excellent option for value and dividend investors.
Pfizer has also been an underperformer over the trailing-12-month period, and the reason is no secret. After smashing revenue records last year thanks to its coronavirus portfolio, sales are now dropping off a cliff along with the demand for COVID-19 vaccines and medicines. However, it's safe to say that Pfizer has massively benefited from its coronavirus-related effort.
The pharma giant has taken necessary steps to secure its future, partly thanks to its success in this market. The company has pushed several pipeline programs, both internally developed and acquired, and is currently on a spree of important approvals. In late June, Pfizer earned the green light from the U.S. Food and Drug Administration (FDA) for Ngenla, a therapy for pediatric growth hormone deficiency.
Also in late June, the company announced that the FDA had accepted its application for fidanacogene elaparvovec, a potential treatment for hemophilia. A week earlier, Pfizer earned approval for Litfulo, a treatment for alopecia areata. And in May, Abrysvo, the company's vaccine for respiratory syncytial virus (RSV), earned a thumbs-up from the FDA.
Clearly, a lot is going on with the company on the regulatory front, and that should continue through the next year or so, as CEO Albert Bourla predicted at the beginning of the year.
Meanwhile, Pfizer recently made a big move with its planned $43 billion acquisition of oncology expert Seagen. The transaction will bolster both Pfizer's portfolio and pipeline. Its lineup should be significantly rejuvenated over the next three years, a great sign for investors focused on the long game.
The stock's forward P/E is only 11 as of this writing. Pfizer's dividend yield of 4.5% is also much higher than the average for the S&P 500, and the drugmaker has hiked its payouts by nearly 21% over the past five years. Pfizer should handsomely reward investors who get in now and hold onto its shares for the next five years and beyond.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Pfizer, and Seagen. The Motley Fool has a disclosure policy.