Many top healthcare stocks provide investors with long-term stability, promising growth prospects, and in some cases even a dividend.
Yet, investors don’t appear to be sold on the fact that Bristol Myers Squibb (NYSE: BMY) checks off all those boxes. The business faces some concerning challenges in the near term, but there is hope that it can get back to growing in the long run.
For contrarian investors willing to take a chance on the healthcare company, there could be some promising upside, especially given its low valuation. Does Bristol Myers Squibb stock have the potential to make you a millionaire?
What has investors so concerned?
Bristol Myers Squibb hasn’t been winning over many investors of late. In fact, they have been downright bearish; shares of the healthcare company are down 30% in just the past 12 months.
It’s not hard to see why investors might not be all that thrilled. It has around $37 billion in long-term debt on its books at a time when interest rates are high. It’s also staring down the prospect of declining sales from top drugs Eliquis, Opdivo, and Revlimid as they lose patent protection in the years ahead. And in Revlimid’s case, it is already facing competition from generics.
Revenue fell by 3% last year to just over $45 billion, the second straight year that the top line has declined. The concern is that it could be the start of longer-term trend. And when combined with the high debt load, it doesn’t paint a pretty picture for investors or give them much reason to buy shares of the company.
Why the stock could be a tempting contrarian investment
The near-term outlook for Bristol Myers is indeed concerning. But the company isn’t standing pat. It’s doing what drug companies always do: looking to bring new products to market and work on their pipelines.
Within the past year, the company has obtained approvals from the Food and Drug Administration (FDA) for multiple drugs. In August 2023, regulators approved Reblozyl, a treatment for anemia in people who might require blood transfusions. It’s a promising blockbuster drug that could generate $4 billion in sales at its peak.
In March, the FDA granted accelerated approval for Breyanzi, a T-cell therapy for relapsed or refractory chronic lymphocytic leukemia or small lymphocytic lymphoma. This is another promising product, with analysts projecting that its sales could top $2 billion.
Bristol Myers has even more in its pipeline, and it projects that by 2029, its new products could contribute up to $25 billion in revenue. In 2023, its new product portfolio generated a fairly modest $3.6 billion, so there’s a lot more growth to come for the company in the years ahead.
But could the stock be a millionaire-maker?
If you’re optimistic that Bristol Myers Squibb can get back to growing its business through its new products, there clearly can be a lot of upside from buying the stock today, especially at its reduced price. The shares currently trade at an incredibly cheap forward price-to-earnings (P/E) multiple of 7 (based on analyst projections of its future profits). But the big question is just how much profit could you make from the stock in the long run.
If you were to invest $10,000, for example, you would need Bristol Myers to jump 100 times its value for it to make you a millionaire. The company’s market cap is around $100 billion, which means growing by 100x would put its valuation at approximately $10 trillion.
There isn’t a trillion-dollar healthcare company today, but in 20 to 30 years, there might be — and possibly several. The problem I see is that even over a 30-year period, that would require Bristol Myers Squibb stock to have a compound annual growth rate (CAGR) of approximately 16.6% — well above the S&P 500‘s long-run average of 10% per year. The company would need some fantastic drugs in its portfolio for investors to be that bullish on the stock for that long.
Assuming you were to invest $20,000, then you would need a 50x jump to get to $1 million. At that rate, you’re looking at a CAGR of 13.9% over a 30-year period, which is still notably higher than the S&P 500.
Should you buy Bristol Myers Squibb stock?
Ultimately, it doesn’t look probable based on where the company is today that Bristol Myers Squibb can be a millionaire-making stock — unless you invest a significant amount of money. While a lot can change over 30 years, it’s hard to make the case that not only can the stock drastically turn things around right now, but that it also will be a vastly superior, market-beating investment for decades.
Given its low valuation, Bristol Myers Squibb can be a good stock, but you shouldn’t set your expectations too high because the company does face a challenging road ahead.
Should you invest $1,000 in Bristol Myers Squibb right now?
Before you buy stock in Bristol Myers Squibb, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bristol Myers Squibb wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $505,010!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 22, 2024
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.
Is Bristol Myers Squibb Stock a Millionaire Maker? was originally published by The Motley Fool