Stock analysis Pollie-Style!
One of my goals for 2018 is more diversification in my Vrijheid Fonds. This because I think that diversification is what saves my Vrijheid Fonds when the markets will hit a financial storm. One way I want to diversify more is to diversify geographically by investing more in European companies.
I have used the Euro Dividend Champions list for a pre-selection of potential stocks. After this pre-selection I looked at companies that in my opinion, will benefit from the aging of humanity in Europe. One company caught my eye (after I took an aspirin 
).
So this analysis is on Bayer AG (BAYN).
Company
From Wikipedia: Bayer AG is a German multinational, pharmaceutical and life sciences company. It is founded in august 1863 and headquartered in Leverkusen, where its illuminated sign is a landmark. Bayer’s primary areas of business include human and veterinary pharmaceuticals; consumer healthcare products; agricultural chemicals and biotechnology products; and high value polymers. The company is a component of the Euro Stoxx 50 stock market index. The company’s motto is “science for a better life.”
Can I explain this to a 10-year old? What Does This Company Do?
This company makes aspirin for when you are sick and other prescription drugs. And they also make drugs for animals.
Pollie-code Analysis
Dividend Aristocrat: BAYN has raised its dividend for 13 consecutive years. It is therefore a Dividend Contender on the Euro Dividend Champions-list. Because in Europe companies don’t raise their dividend very often, I’m happy with a dividend contender. Therefore it is a Pass!
Dividend Yield > 2.5%: The dividend Yield of BAYN is 2.75%. This is below the industry average of 3.2%, but above its 5 years average (2.2%). The Yield is above the requirements of the Pollie-Code, and therefore it is a Pass.
Dividend payout <70%: The dividend payout is a little bit more than 50%. This is below the maximum ratio, and that is what a DGI wants. BAYN also a Pass on this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 8.0, 8.7, 10.4 and 10.4. With a 3-years average around 8% this looks very good! And it is above the requirements of the Pollie-code, so it is a Pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. BAYN has a current P/E ratio of 20.07. The industry average is 36. The P/E ratio is below the industry average. And it is slightly lower that its 5-years average (24.1). The P/E-ratio is above the requirement of the Pollie-Code. So this is a Fail.
EPS > 0: The EPS is 5.75 Therefore BAYN passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 25.2%. This is another Pass.
Market Cap. > 100M: No problem at this point. The Market cap. Is more than $ 101.900 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 13.15. So it is another Pass for BAYN.
Stock price 52wk high-25%: The 52 week high and low are: €123.9 and €94.72. This means that Bayer will be in my buying zone when the stock price is below €116.61 ((123.9-94.72)*0.75 + 94.72). At this moment Bayer AG is trading for €98.10. Therefore it is a pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for Bayer is 0.99.
Debt/Equity ratio: The Debt/Equity ratio of Bayer is around 0.34. This is what we like to see in a company very high.
Conclusion
When I look at my analysis, Bayer AG passed 9 out of 10 metrics of the Pollie-code!! The only metric it is failing is that Bayer is trading at a higher P/E-ratio.
Furthermore in my research I found out that Bayer has a robust pipeline of new drugs ranging between phase I and phase III development, and that the company plans to launch at least 20 products by the end of 2023.
Yes, I know that there are a lot of big pharmaceutical players in this world. I think at this moment Bayer is number 10 in the world. So it is save to say that Bayer faces its share of challenges in the generic drug competition. However, I believe that new drug approvals, a solid pipeline and the company’s deals and acquisitions will pave the way for growth this year
All this information together I certainly will put Bayer AG on my watch list for my Vrijheid Fonds and probably will take action in the near future.
What are you – the readers, thoughts on Bayer AG? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
Pollie.
Disclaimer: I’m not a registered investment adviser, investment professional, brokerage firm or investment company. Readers are advised that information on the website is issued solely for information purposes and not to be construed as an offer or recommendation to buy, hold, or sell any securities. All information, opinions, and analyses included are based on sources believed to be reliable, but no representation or warranty is made concerning accuracy, correctness, timeliness, or appropriateness. Please consult with an investment professional before investing any of your money.
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