Stock analysis Pollie-Style!
One of my goals for 2018 is more diversification in my Vrijheid Fonds. This because I think that diversification is what saves my Vrijheid Fonds when the markets will hit a financial storm. One way I want to diversify more is to diversify geographically by investing more in European companies.
I have used the Euro Dividend Champions list for a pre-selection of potential stocks. After this pre-selection I looked at companies that in my opinion, will benefit from the aging of humanity in Europe. One company caught my eye (after I took an aspirin 😉 ).
So this analysis is on Bayer AG (BAYN).
From Wikipedia: Bayer AG is a German multinational, pharmaceutical and life sciences company. It is founded in august 1863 and headquartered in Leverkusen, where its illuminated sign is a landmark. Bayer’s primary areas of business include human and veterinary pharmaceuticals; consumer healthcare products; agricultural chemicals and biotechnology products; and high value polymers. The company is a component of the Euro Stoxx 50 stock market index. The company’s motto is “science for a better life.”
Can I explain this to a 10-year old? What Does This Company Do?
This company makes aspirin for when you are sick and other prescription drugs. And they also make drugs for animals.
Dividend Aristocrat: BAYN has raised its dividend for 13 consecutive years. It is therefore a Dividend Contender on the Euro Dividend Champions-list. Because in Europe companies don’t raise their dividend very often, I’m happy with a dividend contender. Therefore it is a Pass!
Dividend Yield > 2.5%: The dividend Yield of BAYN is 2.75%. This is below the industry average of 3.2%, but above its 5 years average (2.2%). The Yield is above the requirements of the Pollie-Code, and therefore it is a Pass.
Dividend payout <70%: The dividend payout is a little bit more than 50%. This is below the maximum ratio, and that is what a DGI wants. BAYN also a Pass on this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 8.0, 8.7, 10.4 and 10.4. With a 3-years average around 8% this looks very good! And it is above the requirements of the Pollie-code, so it is a Pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. BAYN has a current P/E ratio of 20.07. The industry average is 36. The P/E ratio is below the industry average. And it is slightly lower that its 5-years average (24.1). The P/E-ratio is above the requirement of the Pollie-Code. So this is a Fail.
EPS > 0: The EPS is 5.75 Therefore BAYN passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 25.2%. This is another Pass.
Market Cap. > 100M: No problem at this point. The Market cap. Is more than $ 101.900 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 13.15. So it is another Pass for BAYN.
Stock price 52wk high-25%: The 52 week high and low are: €123.9 and €94.72. This means that Bayer will be in my buying zone when the stock price is below €116.61 ((123.9-94.72)*0.75 + 94.72). At this moment Bayer AG is trading for €98.10. Therefore it is a pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for Bayer is 0.99.
Debt/Equity ratio: The Debt/Equity ratio of Bayer is around 0.34. This is what we like to see in a company very high.
When I look at my analysis, Bayer AG passed 9 out of 10 metrics of the Pollie-code!! The only metric it is failing is that Bayer is trading at a higher P/E-ratio.
Furthermore in my research I found out that Bayer has a robust pipeline of new drugs ranging between phase I and phase III development, and that the company plans to launch at least 20 products by the end of 2023.
Yes, I know that there are a lot of big pharmaceutical players in this world. I think at this moment Bayer is number 10 in the world. So it is save to say that Bayer faces its share of challenges in the generic drug competition. However, I believe that new drug approvals, a solid pipeline and the company’s deals and acquisitions will pave the way for growth this year
All this information together I certainly will put Bayer AG on my watch list for my Vrijheid Fonds and probably will take action in the near future.
What are you – the readers, thoughts on Bayer AG? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
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