I'm normally one to look for stocks that are doubles with a potential for a home run. But with the January euphoria in full swing, I'm warming up to stocks that are mostly 'known knowns' with a low potential for 'unknown unknowns' (to paraphrase Donald Rumsfeld). If you're looking for that category of income with a cheap option on growth, read on for my take on why Bristol-Myers (NYSE:BMY) might fit the bill.
Steady Dividend, Realistic Dividend Growth Rate. Over some of the most difficult years in the U.S. economy, Bristol's dividend (growth) has stayed positive - with a current dividend of around 4% and a projected dividend growth of a very manageable 3%. The creditable part of the Ycharts dividend chart below is that the dividend didn't drop in 2009. This gives credence to the fiscal conservativeness of Bristol's dividend policy, and makes BMY worth considering even for bond investors who place considerable emphasis on predictable cash distributions in perpetuity.
Decent Technicals. Since the stock price 'cliff' in August 2012, BMY has traded in a relatively tight range. It is bumping up against resistance at $34.50 (although I argue below that there is potential to break thru it), and has decent support at $33 (the red line in the chart below). The pessimists would point to the $32 range (orange rectangle), which in my view is not out of the question in a market air pocket, but less likely in light of the potential rotation into both defensive stocks and mega-caps. Another trading site that tracks technicals identifies BMY as having a bullish pattern with roughly the support levels I identify (see the snapshot on short/medium/long pivots below)
Positive News flow on new drug pipeline. One of the reasons for the stock cliff of August 2012 where BMY fell from $36 to $32 (see the red rectangle in the chart above) was concern about Eliquis, one of its upcoming blockbuster drugs. With the positive news flow around Eliquis, and the marketing muscle of Pfizer behind it, I'd argue that you'll see a reversal back to $36 over the next 2-3 months (and therefore past the resistance at $34.5).
Growing Analyst Enthusiasm. Jeffrey Holford of Jefferies & Co., is a Starmine rated best analyst on BMY. He recently raised his stock price target for BMY from $36 to $39. To be fair, Goldman Sachs on the other hand, recently reduced the target from $40 to $39. I place greater weight in a best-rated analyst taking the risk to raise his price target eight days before the earnings release, and also note that Goldman was quite optimistic about the company while reducing its 12-month price target.
In summary, you're looking at a stock with a potential upside of 15% (4% dividend, 11%-12% stock price) and 3% downside (to the support at $32). If you want to wait for the support levels of $33, these numbers look more like 18% up and negligible downside barring 'black swan' events. Not a bad prognosis for a stock, especially for the conservative end of your stock portfolio.
Disclosure: I am long BMY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.