We recently compiled a list of the Jim Cramer’s Exclusive List of 9 YEV Stocks. In this article, we are going to take a look at where Bristol-Myers Squibb Company (NYSE:BMY) stands against the other YEV stocks in Jim Cramer’s exclusive list.
Recently, Jim Cramer sifted through the S&P 500 to identify stocks that satisfy his criteria: yield, earnings growth, and value. He explained the need behind the criteria:
“In a market with huge year-to-date gains, you got to get a little more selective about what you buy. Which is why I created this three-part test, also known as tripartite test.”
To navigate this market, he developed a three-part evaluation framework, which he refers to as the YEV test. Cramer explained that the first criterion focuses on yield, specifically seeking stocks that offer better returns than the current yield on the 10-year Treasury, which sits slightly above 4%. The second criterion is outsized earnings growth, meaning he looks for companies expected to exceed the 14% growth forecast for the S&P 500 next year. Lastly, Cramer seeks value, targeting stocks priced lower than the S&P 500, which currently trades at around 21 times next year’s earnings estimates.
“We want stocks with higher yields than the 10-year Treasury, meaning 4% plus. We want faster earnings growth than the S&P 500. In the aggregate, that’s faster than 14%. And we want a price-earnings multiple lower than that of the overall S&P 500, which trades at 21 times next year’s earnings, which everybody says is a little elevated.”
While Cramer acknowledged that his criteria was challenging to meet, he successfully identified nine stocks that fit the YEV model. He noted that although the Federal Reserve has created a favorable environment for investors, resulting in substantial market gains, it is crucial to exercise caution when selecting stocks.
Observing the historical trends, Cramer pointed out that October has generally been a strong month for the market, yet he reiterated the necessity of being discerning in purchases. He encouraged viewers to consider these nine stocks as the top tier within the market. He went on to emphasize:
“Now, I want you to think of them as the elite of the elite. Not many companies can give you high yields, cheap stocks, and explosive earnings growth all at the same time… Here’s the bottom line: in a market like this one, you do need to be selective, which is why we’ve fallen back on yield, on earnings and on growth and on value. Okay, now these are all things that are very hard to find right now.”
Our Methodology
For this article, we compiled a list of 9 stocks that fit Jim Cramer’s YEV stocks criteria and were unveiled during his episodes of Mad Money from October 7 to October 10. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A pharmacy shelves stocked with pharmaceutical drugs awaiting distribution.
Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 61
Cramer included Bristol-Myers Squibb Company (NYSE:BMY) in his YEV stocks list and mentioned the company’s acquisitions which can bring promising additions to its pipeline. Here’s what he had to say:
“First up, there’s Bristol Myers Squibb, the pharmaceutical giant that we just checked in with last week. Bristol Myers sports a 4.55% yield, and the stock trades at a paltry 7.6 times next year’s earnings estimates. It also looks incredibly cheap on 2025 growth, but that’s because mostly they’re taking a big earnings hit this year from a $12 billion charge related to a recent acquisition. They’re looking at above 800% earnings growth next year simply because things are going back to normal. But I don’t care if Bristol Myers made the YEV list loophole. After speaking to management last week, I think it’s a great time to consider buying this one.
Why? Because if you’re thinking about the 2024-2025 earnings estimates here, I think you’re missing the whole story. Bristol Myers has a major long-term turnaround plan in place, and I believe they can deliver. I think it’s going to take a little time.
Remember, Bristol Myers had a big downturn as its big cancer franchise fell behind Merck’s, and its huge $74 billion acquisition of Celgene wasn’t, in retrospect, really worth the price. The company’s revenue growth disappeared for the last couple of years, and they had a down earnings year in 2023. For the first time in a decade, things looked grim, especially with big patent cliffs looming for some of their top drugs in the next few years.
But now Bristol Myers is under new management, with Chris Boerner taking over as CEO nearly a year ago, he got started with a bang. A month later, the company announced two deals. First, paying $14 billion to acquire neuroscience specialist Karuna Therapeutics and then just days later announcing $4.1 billion to buy a cancer-focused biotech company called RayzeBio. This is on top of the $5.8 billion position of Mirati Therapeutics, another cancer play that we learned about just before Boerner took over.”
Cramer remarked that these developments hinted at a coherent plan for the company, despite Wall Street’s lack of enthusiasm, as the stock price continued to decline during the first half of the year. The situation was exacerbated when Bristol-Myers (NYSE:BMY) reported a $12 billion charge related to the acquisition of Karuna Therapeutics in April, coupled with their full-year earnings forecast.
However, Cramer emphasized that this charge was more of a patent-related issue rather than a reflection of poor management decisions. He clarified that the company did not make any significant mistakes. He added:
“Ultimately, the stock finally found its footing in July, down 23% for the year. Since then, though, things [have] come roaring back. First, Bristol Myers reported a better-than-expected quarter in July and raised its previously slashed earnings for outlook by 36%. More importantly, the company got its first big payoff from its late 2023 takeover spree. The lead drug they got from Karuna Therapeutics called Cobenfy got FDA approval for treatment for schizophrenia. This thing is revolutionary because it’s the only schizophrenia drug that doesn’t have life-ruining side effects. And Bristol Myers has much better, bigger ambitions for Cobenfy.
They’re actively studying it for a treatment for adjunctive schizophrenia and psychosis in Alzheimer’s disease, with data coming for those indications in 2025 and 2026… Now, when you look at what’s currently on the market, nearly every schizophrenia treatment is also approved for other types of psychoses, I bet this one follows the same trajectory, just without the side effects. Every single approval will make people excited about owning the stock of Bristol Myers.”
Cramer wrapped up by expressing concerns about the company potentially losing patent protection for several critical drugs within the next two to four years. Despite this looming challenge, he believes that the recent acquisitions will provide the company with a strong lineup of quality drugs in development.
“In the end, you still got to worry that Bristol Myers is losing patent protection for some key drugs in the next two to four years. But with all these acquisitions, I think they’ve got enough quality drugs in the pipeline to come out of this period in much better shape. Oh, I’d be a buyer.”
Bristol-Myers (NYSE:BMY) is a global leader in biopharmaceuticals and addresses various diseases across multiple fields, including hematology, oncology, cardiovascular health, immunology, fibrotic diseases, and neuroscience. In the previous year, its portfolio included ten medicines that each generated over $1 billion in sales, highlighting the significance of its offerings in the pharmaceutical market.
Among its newer products, Reblozyl, which treats anemia in patients with beta-thalassemia, has gained substantial traction since its approval in 2019. Last year, Reblozyl achieved $1 billion in sales, reflecting its importance in the company’s lineup. The momentum for this drug continues to build, as evidenced by a remarkable 82% increase in revenue year-over-year, reaching $425 million in the second quarter. Overall, the company reported a 9% rise in revenue for the same quarter, totaling $12.2 billion.
Overall BMY ranks 1st on Jim Cramer’s exclusive list of YEV stocks. While we acknowledge the potential of BMY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BMY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.