The Prescription For Bristol Myers? Sell

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 |  About: Bristol-Myers Squibb Company (BMY), Includes: AZN, LLY
by: Yieldpig

I've never tried to count how many times a week Jim Cramer touts pharma giant Bristol Myers Squibb (NYSE:BMY) on "Mad Money" (pronounced "Bristol Mars" in Cramerese). However, it's probably safe to say that it would rival the number of times a garden variety twenty-something girl says the most overused word of the decade: "amazing." BMY's run over a rolling one year period has returned nearly 30% exclusive of dividends. Throw those in and you've captured 35% or a little better. But is the stock price getting a little long in the tooth? Looks that way to me.

A historical leader in the industry, their portfolio holds serious market share in the cardiovascular space and newer cancer drugs such as Yernoy and Sprycel are showing strong, upside sales promise. However, the company's patent on Plavix, the anti-coagulant that seemingly every baby boomer in America is on, expired in May of this year. Overall sales for the company are expected to drop 15% for 2012 as sales of the once mighty Plavix are cut by an expected 60% due to generic competition. Throw in the company's recent announcement to acquire Amylin Pharmaceuticals (AMLN) and you've got some significant headwinds.

Outside of the fundamental concerns affecting the company, stock valuation has set of my alarm. BMY shares trade at around 18 times forward earnings. Not a horrendously expensive number for a high quality name with a decent dividend yield of 3.8%. But when comparing BMY's forward P/E to that of the S&P 500, things start to look a little pricey. The S&P's forward multiple is a little better than 12 times. That puts BMY at 51% premium to the index. And taking a quick survey of names in BMY's peer group that trade with forward P/E's of anywhere from 8 to 13 times, investors are ponying better than a 71% premium to the group for an earnings stream that's guaranteed to at slow down due to merger pressures and generic attrition.

Armed with this idea, it might make sense for holders to take BMY off of the table and consider some of its more bargain priced brethren. One of my perennial favorites, Eli Lilly (NYSE:LLY) trades at 13 times forward earnings and pays out a nice 4.46% dividend. The company is also run by a Lilly lifer who cut his chops working in the R&D lab. Currently, they've got around 68 names in the pipeline with about half in some stage of regulatory review. Big British pharma company AstraZeneca PLC (NYSE:AZN) is another idea. Peddling Nexium, the most expensive antacid in the universe that my insurer refuses to pay for, AZN trades at a single digit multiple of 8 times and yields over 6%.

Bristol Myers is still a good holding and an incredibly well run company. But the run may be done. Lightening up could save investors a couple of dollars and some heartache. Speaking from experience, few things suck as much as watching a 36% shrivel to 20% or less. The market has given you a gift. Be thankful and smart.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.