Yeah the potential for misinterpreting context or meaning online is all too real. It's certainly not the first time I've done it, or seen it happen.
On topic though, I really think we're in a funny time economically, one that most of us are not prepared to really give reliable guidance on. Certainly what you cite is true, but what you cite is applicable across pretty much all industries.
I'm invested in agriculture. Price of argicultural commodities is down this year, and throughout the year there was periodic forecast for further decline. A lot of folks say that means we need to sell all our agricultural holdings, particularly fertilizer, which is my focal point.
I own a lot of GE. GE credit has been a nightmare for that company, and their innovation in wind technology seemed not so important when the energy bubble burst. Lots of people advised to jump out of that one.
I've been considering investing in StatoilHydro, one of the more socio-environmentally progressive oil companies. Partly state-owned company in Norway with big investments in wind technology, and in reducing the environmental impact of their oil and natural gas rigs. Lots of folks say that there is no foreseeable increase in the price of oil, so investing in oil, and energy in general, will not make money.
I think that at some point, possibly as early as this summer, we're going to see the full effects of the road to recovery from the recession. That's gonna mean higher energy costs, and a return to essential healthcare. I think that Obama's stimulus plan is going to help GE, and that his focus on healthcare is going to help those census levels and US accessibility of healthcare.
Is that recovery going to definitely occur this summer? No, not definitely at all. But if you wait until the road to recovery is already pronounced, you miss the market bottom and the dividends you could have collected in the meantime. Healthcare and agriculture both benefit from growing worldwide populations, and the economic growth of countries like India and China. Healthcare also benefits from the aging US population.
And even if BDX is not the best recipient of worldwide recovery in that regard, between Baxter, JNJ, BD, and Teva, I should hit solid somewhere I think. Of those four, BDX is actually my smallest holding by the way.
I'm not looking to hit the bottom of the market. Doing that would only be luck. I'm looking to invest in good companies of a sector that shows complete potential for worldwide growth.
Thanks for that. I was troubled by your reply and thanks for fixing.
Yes, I'm challenging (anyone) where this growth could potentially coming from with these drastically reduced US hospital census levels.
BDX does not have a strong track record in product innovation. They tried to launch Blood Glucose Monitors. BD Logic and BD Latitude. What a disaster! Latitude was some humongous box that was supposed to carry an insulin pen and accessories, with an integrated meter. Logic spit out errors due to poor strip quality. Guess what? They discontinued that product line quick.
Integra is not something BDX designed. They bought it.
I tend to shy away from companies that have no internal product development innovations.
P.S.: It occurred to me this morning that I may well have misinterpretted something you wrote. When you wrote that I should be able to state BD's source of profit growth for 2009, I personalized that a bit, and thought that you were "quizzing" me. Rereading that, I think you were instead indicating that I should not be investing in a company that doesn't have a reliable growth model for the second half of the year.
Sorry for misinterpretting you, and that's why my response started a bit on the testy side.
A little heavy handed, and perhaps presumptuous, to tell others whether they have the requisite knowledge to be an investor. I've conceded that your knowledge of healthcare exceeds my own, but I think it's overbearing and excessive to imply that I'm a dummy in this. I've done my due diligence, and I've articulated my opinions. I think I am fully qualified to own BDX stock as one part of my diversified healthcare section of one of my three further-diversified investment portfolios.
In response to your 30-second question, "How will BD grow sales in 2009?"
This is from the S&P analysis:
"In our view, BDX has significant growth opportunities in the detection of bacterial (including drug-resistant) infections and cervical cancer."
Another quote re. growth:
"We see gross margins expanding modestly in FY 09, due to a more favorable sales mix and manufacturing efficiencies, and believe the recent decline in resin prices will benefit margins."
In their conference call, BD also saw sales in diabetes care bottoming, and as I mentioned earlier, they stated that they were seeing growth in foreign markets, which accounts for 60% of their revenue.
Again, as I wrote earlier, if we're coming to the point where people are not being treated for (or as you write, even diagnosed with) life-threatening or life-altering conditions because of the recession, we're gonna have a lot more at BDX investment at stake.
Regarding swine flu, here's what BD is preparing to contribute to the response:
"The products swine flu could affect include rapid flu tests and immunization devices that would be used with injectable anti-viral drugs."
I'm pretty sure their margin is more than $.10 per item on all of that.
People who are unemployed avoid hospitals NOT because of the costs. They avoid the potential of a chronic condition such as diabetes being diagnosed while not under an employer's insurance plan. I'm sure you know what a "Pre Existing Condition" is. No diagnosis means no preexisting condition.
They'll go in for the near death situations of course, but the routine visits to the ED instead of waiting out your GP are over. Also, even those employed are waiving off elective surguries while any potential lay-off cloud looms above their work place.
Baxter laid off but not well published.
Swine Flu? - What will make you sick is this.
BD is lucky to sell a syringe/needle for $0.10.
Even if a Swine Flu Pandemic forced the mandatory immunization of all 300M US citizens to be vaccinated with a BD syringe/needle, the sales would only be $30M.($0.10 X 300M) An increase in sales of 0.4%
That $30M wouldn't cover the annual compensation of the 4 guys you believe over me at $39M.
Now my turn for a question.
How will BD grow sales in 2009?
If you can't answer that question in 30 seconds you probably shouldn't own this stock. Conversely, if you do hang on to this stock, you can write off the loss to a hard learned lesson about dominant player in a shrinking market.
Reading your post, it almost appears as if the entire healthcare sector is a consumer discretionary. Tell me, if someone with diabetes decides that, in order to keep personal finances balanced, he/she will just go without insulin for three months, what is the result going to be?
Baxter did not lay off employees. They did see mildly decreased sales but increased revenue. They commented that they have no seen any major impact from the recession. They said that they are seeing "selective softening" in the healthcare sector on the whole, as reflected in patient admissions.
BD commented that international growth is up, with heightened European healthcare spending, and double digit growth in China and India. More than 50% of BD's business is international. Double-digit growth across the world will do a lot to offset any continued softening in the US.
In Baxter's conference call, they specifically commented that a lot of their products are designed specifically to treat "life-threatening" conditions, and that such treatment is not going to dissipate during the recession.
And none of this even addresses swine flu. BD noted that sales were off in part due to a mild flu season. That appears to be over with. Baxter is in negotiations with the World Health Organization about a swine flu vaccine. Meanwhile Egypt has ordered the slaughter of its ENTIRE pig population as a panic response to swine flu.
If the cliff you're seeing is really there, it seems to me that we're looking at far worse than an impact on BD's financials. We're looking at deaths, tens of millions at the very least. Preventable deaths.
There is a side to what you're saying that definitely makes sense, because it sounds a lot like the agriculture bubble that burst with the oil/energy bubble. I got hit in that. But I don't think that we've seen any bubble effect in healthcare. After a 30% 12-month drop in BD that was relatively consistent with the market, BDX's share price has grown about 25% over 5 years. Potash Corp, by comparison, has grown 600% in the same timeframe even after getting completely gutted late last year.
BD's trading at a P/E discount to its peers. It offers an attractive dividend for long-term investors who are willing to wait through the effects of the recession.
I still like the stock.
If I did make a prediction about mid 2010 would you believe me?
Your BDX stock was at $70.00 on Jan 9th 2009 when I first explained the dominant player in a shrinking market.
What's got me scared for the rest of your BDX stock is that they don't see the cliff. Basically you can't run with $1.7B/year in sales/admin costs to sell to only 7K hospitals worldwide. You can if your business is growing but not if its flat or even declining.
The reason BDX earnings aren't worse is because of the huge lag time between when a product is actually used to the time when it is recorded by BD. As it looks now, the November layoffs are only now starting to show up on the BDX bottom line (or at least they should be). Think about the time it takes for each hospital department to use its inventory as fewer patients come through. The inventory sits a little longer in the department shelf & stock room, then the main hospital warehouse then the distributor supply to eventually the BD distribution center where the drop is usage is finally realized.
Like a big train coming to a stop, BDX keeps making and selling to the distributors based on usual levels. Only after the hospital gets oversupplied does it call back to the distributor to slow up and so on. Then when the dealers are overstocked the company (CAH, BAX, JNJ) lays off employees. This temporarily increased profit as the COGS drops. That was Baxters good news. Sales down but profits up.
Big scary is that BDX isn't laying off and has no plans to and will keep on burning $1.7B in sales/marketing/admin employees while its market rapidly shrinks. If the drop isn't noticed soon enough then sales go to zero as dealers are massively overstocked. If the situation is bad enough, the layoffs go to manufacturing.
I'm content on the long-term perspective, though my enthusiasm has been slashed with each move from the S&P. Oh well, you pick 'em based on the info you have, and then you stick with 'em.
The potential exists for them to get tapped into the swine flu response. They do "rapid flu tests and immunization devices that would be used with injectable anti-viral drugs," and they're already seeing greater demand for these products from Mexico.
Baxter has received a very nice bump in the market thanks to swine flu. I'm no expert on any of this, but it seems to me like BDX is due some love on the issue as well.