Dump the bank, buy the drug
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Dear Mr. Berko:
I own 450 shares of Bank of America that I bought in March 2008 at $44, and as you know, it’s now $17. I should have sold the stock at $34 when you told me to in October of that year, but my wife was adamantly against it. Now she wants to sell the stock. She was told that the bank gives credit cards to illegal aliens without Social Security numbers. Could this possibly be true? If it’s true, she’s angry. Her brother, who doesn’t have a Social Security number and visits each year from Denmark for five months, couldn’t get one from that bank. Should I sell Bank of America at this lower price or hold it? We would buy 300 shares of Bristol-Myers Squibb with the proceeds. Our neighbor, who is a physician, says Bristol has a new cancer-fighting drug that could become a blockbuster. What do you think?
T.S., Vancouver, Wash.
Dear T.S.:
Yes, by all means, sell Bank of America Corp. (BAC-$14.71), but not because it gives credit cards to illegal aliens. I would sell BAC because it’s poorly managed; because I don’t trust its business model; because the dividend is niggardly; because its Merrill Lynch investment banking business gives me the willies; because loan charge-offs will be a drag on 2010 and 2011 earnings; because its “too big to fail” size means the government might increase its capital requirement by 25 percent; because many Americans who don’t trust BAC and Merrill Lynch are moving their accounts to smaller community banks; and because Merrill Lynch’s retail business “sphinx” and the coming double-dip recession will squeeze Merrill’s business like shrink wrap. Those are the reasons to sell BAC, not because it gave Visa cards to illegal aliens.
Meanwhile, the person with whom I spoke at Bank of America told me that the company stopped this practice last year due to pressure from critics who regarded the program as an endorsement of illegal immigration.
I like your choice of Bristol-Myers Squibb Co. (BMY-$25.80), which pays a dividend of $1.28 per share, yielding a healthy 5 percent. According to my son, who is a physician and knows more about this stuff than I do, the drug to which your neighbor refers to is Ipilimumab. Heck, I can’t even pronounce it, but a while back, this stuff was promoted by BMY as the end-all and cure-all for late-stage melanoma, which is usually fatal.
This formulation is taken from genetically altered mice to create an antibody that speeds up one’s immune system, allowing white blood cells to attack the cancerous tumor.
Early trials seemed like a disaster, and investors were disappointed. The tumors continued to grow, and some patients became very ill, developing skin lesions, organ damage and diarrhea.
But researchers failed to realize that the worsening conditions were an inflammation response from the invasion of good cells attacking the tumor and surrounding tissue. So those painful episodes were signs that Ipilimumab was doing what it was engineered to do.
The boys and girls at Bristol also have good reason to believe that Ipilimumab is also effective against tumors in the lung and prostate. So with a little bit of luck, Ipilimumab could get Food and Drug Administration approval within 12 months. With less than a little bit of luck, this could be a multibillion-dollar drug for BMY in three to four years and, of course, rather nicely increase the share price.
BMY should generate $19.8 billion in revenues this year and earn $2.18 per share. BMY has $7 billion in cash, trades at a low 11 times earnings and should raise its dividend again next year. I think this is a classy long-term investment, and the generous dividend, plus above-average future earnings potential, suggests that this issue is a compelling buy at this low price.
So yes, get rid of your cold-blooded monster bank that treated its depositors like animal waste and use the proceeds to own BMY. In the coming two to three years, your BMY shares could trade in the low $30s.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775 or e-mail him at mjberko@yahoo.com.© 2010 Creators.Com
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