Currently, there are many indicators showing that the U.S. stock market is overvalued.
According to the Buffett Indicator, "the Total Market Index is at $48712.3 billion, which is about 210.2% of the last reported GDP." Thus, the U.S. stock market is positioned for an average annualized return of about -3.3%.This includes the returns from the dividends, currently yielding 1.2%.
The Buffett Indicator is names as such because Warren Buffett (Trades, Portfolio) famously said the percentage of total market cap (TMC) relative to the U.S. GNP is “probably the best single measure of where valuations stand at any given moment.”
Even in this high priced market, there are still good companies selling at quite reasonable prices. One technique I use to identify value opportunities is to review which stocks are trading near 52 week lows (which means that the crowd is not interested in these stocks, i.e., they are contrarian picks). But this is not enough. One must see which stocks are also strong financially and can withstand any temporary setbacks.
In this article, I am highlighting three pharmaceutical companies with superb balance sheets which are trading near 52-week lows. These are all rated A++ by Value Line for balance sheet strength and are considered at least 20% undervalued by analysts.
| Company Name | Ticker | Price | % Change Price From 52 Week Low | % Change Price From 52 Week High |
| Amgen Inc | AMGN | 207.4 | 5.45% | 23.60% |
| Bristol Myers Squibb Co | BMY | 59.62 | 5.92% | 14.80% |
| Novartis AG | NVS | 82.28 | 1.83% | 16.27% |
Amgen Inc.
Amgen Inc. (AMGN, Financial) is a pioneer of the Biotechology industry and remains the leader.
The GuruFocus Value Line shows the stock to be modestly undervalued. With a forward price-earnings ratio of less than 12, it looks like a reasonable price to pay for this superb company.
Bristol Myers Squibb Company
Bristol Myers Squibb Company (BMY, Financial) is a former big pharma company with a storied past. It has now pretty much completed its transition to a biotechnology company. Its latest acquisition was Celgene, another biotech firm, which has bolstered its pipeline. Its forward price-earnigns ratio is only 7.45.
The GF Value Line also indicates that the stock is modestly undervalued.
Novartis AG
Novartis AG (NVS, Financial) is a Swiss multinational big pharma company. With a forward price-earnigns ratio of 12.44 and a dividend yielding 3.88%, it looks particularly attractives on a total return basis.
The GF Value Line indicates modest undervaluation.
Conclusion
You don't have to be a genius to be a good investor, in my experience. You just need to have a good process and the discipline to execute it when opportunity presents itself. Mr. Market tends to temporarily discard perfectly good companies while he runs after the next new shiny thing. One setup I find useful is to look at the 52-week low list regularly and to make note if some well-known companies are on it. This process has served me well over the years. Note that we are not dumpster diving here. We are looking for good companies with strong balance sheets whose undervaluation is far more likely to be the result of temporary pessimism.
