Recession Guide - BDX
With our economy struggling under the weight of multiple potential large bank failures, with high oil prices, high food prices—you name it—financially strangling indiviuals and companies alike, you need the Cramerican Marine Field Guide to recessions if you want to try and make money in this market. The field guide, which I've been highlighting all week is simple—we want to own stocks that are assured to have better year over year earnings--even if those earnings comparisons will be less than you might see short term for steel or oil or minerals, the one time queens of the runway.
Now that earnings season has started, the area I like is healthcare, as I’ve explained before, this has nothing to do with healthcare companies doing better—the fundamentals matter when I pick the stocks, but they’re not the reason why we’re rotating into healthcare. This is all about the Wall Street fashion show—whereas before, when we weren’t facing the possibility of a worldwide slowdown—the big money guys could comfortably invest in more exciting, fast-growing, but less consistent stocks, they now are afraid that the companies behind those stocks won’t be able to make the numbers out next year in a global slowdown. The healthcare stocks, on the other hand, are boring, they are consistent, they are immunized against everything that’s keeping this market down, and that means they’re the kind of stocks that let the big money managers—and you—sleep comfortably at night. We want to get in before the institutional investors take these stocks up too much although that's already started happening coincident to this week's Mad Money series. The Cramerican Marine Field Guide to Recessions so far has led me to recommend Genentech and Smith and Nephew.
Today I give you Becton Dickinson , BDX, not to be confused with Emily Dickinson--which I know, not from reading Oprah books, but because it's the rest stop with the cleanest bathrooms on the Jersey Turnpike, this Becton Dickinson makes syringes and needles especially, but also catheters and various other day-to-day medical devices like surgical blades and disposable containers, as well as having a nice diagnostics division—we especially like diagnostics under an Obama administration because his healthcare plan specifically talks about spending more money on preventative medicine, and when you hear that you need to think diagnostics.
Way, way, way back on April 30th of last year I devoted a segment to the three Bs—no relation to the company in the Constant Gardener if anyone remembers that movie—Becton Dickinson, along with BAX—Baxter , and BCR—CR Bard , not to be confused with the bard—to buy or not to buy, that is the question. We also mixed metaphors and sewed confusion by invoking another 3 bees, Brahms, Beethoven and Bach, in a failed gambit to bring back the 90-year-old demographic. So far Becton Dickinson has been the worst performer, up just 3.2%, CR Bard is up 4.7%, and Baxter’s up 12.8%. I don’t like Baxter anymore, so I’d suggest if you own any, take profits in that name--a Wednesday night edition of Thursday's sell block, kind of like a Thursday night edition of Monday night football. I want you to take your Baxter profits and plow them into my new favorite of the three Bs, Becton Dickinson.
Becton Dickinson is less dependent on the US—it’s a ROWer, with 55% of its sales coming from the rest of the world. But it’s also making good money in this country because of legislative mandates here calling for the use of syringes with extra safety features that prevent the people they’re used on from contracting diseases. Becton Dickinson is a big seller of these so-called shielded needles, just think of them as the safer, cleaner needle alternative. For the much coveted junkie demographic—this stock’s for you.
Germany and Spain have recently worked in similar mandates, so Becton Dickinson can expect to sell more of its pricier shielded needles in those countries too. The idea of even cleaner needles is just catching on—most of the world, including Europe other than Spain and Germany hasn’t made a push for them—but when these countries do, and I think they will because a more expensive needle is a small price to pay for reduced risk of infecting people with diseases, that’s more money for Becton Dickinson. I don’t care how bad the economy gets, doctors just aren’t going to stop using syringes.
Then there’s the diagnostic business, which we really like—BDX is one of the top two providers of tests for MRSA, a treatment resistant skin infection that’s the most common cause of skin irritations that people go to the emergency room for in this country. Becton Dickinson also picked up great test for C. Difficile, a type of colitis that’s is expected to be the next major bug in hospital associated infections, when it bought GeneOhm back in 2006. There could be as many as 250,000 to 300,000 people in America with this disease.
Now Becton Dickinson’s stock has taken a beating for all the wrong reasons—it’s fallen from its 52-week high of $93.24 in January down to $81 today because of, get this, higher oil prices. Resin, which BDX uses to manufacture many of its products, makes up around 9% of BDX’s cost of goods sold, and for every dollar increase in the price of oil, the price of resin, which is made from oil, goes up 40 cents. I think the street’s been making a mountain out of a molehill here--like this spray on make-up does to this pimple right here, treating a medical equipment company like it’s a chemical company that’s facing much higher input cost pressures than it actually is. I also believe that oil seems to have hit a $150 wall here--the Cramerican price tag for the top of oil if you recall--and that's starting to boost a lot of the peripheral oil using consumer companies like Procter and Colgate --that rosy hue should be transferred to BDX right here, right now, particularly because management assured me when I was on Squawk Box when BDX reported that raw cost woes were way over the top versus the reality for BDX.
Bottom line: the Cramerican marine field guide to recessions says keep buying health care despite the astounding rise in pharma so far this week. It's time for the rise to include Becton Dickinson, an ideal name for anybody looking for a healthcare play that's immune to politics, raw costs, and negative consumer sentiment.
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