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Despite being rated just a "hold" on the Street according to T1 Banker, Amgen (NASDAQ:AMGN) has significant upside by my calculations. Bristol Myers (NYSE:BMY) is also attractive in light of its leading dividend yield, potential for greater M&A activity, and undervalued ability to weather patent expiration headwinds. Based on my review of the fundamentals and multiples analysis, I recommend an investment in both firms.

From a multiples perspective, Amgen is the cheaper of the two. It trades at a respective 16.8x and 10.1x past and forward earnings with a dividend yield of 2.1%. Bristol, on the other hand, trades at a respective 15.1x and 16.8x past and forward earnings. Smaller firms 3SBio (NASDAQ:SSRX) and Affymax (NASDAQ:AFFX) echo the upside stories through focusing on markets with unmet demand. For the year to date, the former has gained 14.4% while the latter has gained 57% - momentum that will increasingly attract the Street's attention.

At the fourth quarter earnings call, Bristol's management noted strong results in 2011:

Well, we have just completed a very good, very important year for us, one during which we delivered solid results while setting the stage for a strong future. We grew our sales by 9%, and we are very proud of the performance of our innovative and diversified portfolio, as exemplified by the growth of many of our key brands like ORENCIA, SPRYCEL, BARACLUDE, ONGLYZA and YERVOY. We made some promising advances, with respect to our pipeline, the most important of which were those regarding ELIQUIS. And I believe we continue to be good stewards of shareholder capital as we executed multiple strategic transactions, while at the same time, we increased our dividend and continued our share repurchase program.

The risk outlook has improved for NS5A inhibitor following viral relapses in ELECTRON. Gilead (NASDAQ:GILD) and Bristol are currently conducting Phase II trials for their HCV studies. Bristol needs all the support it can get due to patent expiration headwinds from Plavix, Avapro, and Abilify. In the meanwhile, momentum from Orencia and YERVOY is keeping the upside story alive. As the company divests non-core businesses, it is building up liquidity for takeover activity. I anticipate that management will increasingly focus on improving scale through acquisitions in the next half decade.

Consensus estimates for Bristol's EPS forecast that it will decline by 13.6% to $1.97 in 2012, decline by 1.5% in 2013, and then grow by 16% in 2014. Assuming a multiple of 18x and a conservative 2013 EPS of $1.91, the rough intrinsic value of the stock is $34.38, implying 5.5% upside. Keeping in mind the dividend yield of 4.2% and beta of 0.5, Bristol appears to be an attractive defensive play.

While Bristol is attractive from an income standpoint, Amgen is more attractive from a value standpoint. Management has done a stellar job in allocating capital over the recent years. It has been able to outperform through boosting the dividend by 30% and launching an aggressive $5B buyback plan. A few catalysts from the late-stage products entering Phase III date will buoy up value at least until 2013.

Consensus estimates for Amgen's EPS forecast that it will grow by 13.5% to $6.05 in 2012 and then by 10.6% and 12.7% in the following two years. Assuming a multiple of 15x and a conservative 2013 EPS of $6.54, the rough intrinsic value of the stock is $98.10, implying 44.8% upside.

Source: As Amgen Surges, Bristol Hunts For Takeover Targets

Additional disclosure: The distributor of this research report is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence. We seek business relationships with all of the firms in our coverage, but research covered in this note is independent and prospectively commissioned. Always discuss investments with a licensed professional before making any financial decision. Statements made within this report may include “forward-looking statements” as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Since these statements are uncertain, actual results may be materially different from those expected.