Is This Stock Just What the Doctor Ordered?

The broader market is not cheap.

That does not mean there are no good buys, though. Look at Baxter International BAX as an example of a high-quality name which offers extremely low risk but plenty of upside potential. You even garner about 3.4% in current yield while you wait for the coming rebound.

BAX earns an "A" rating for financial strength from Value Line, a 95th percentile stock price stability score and a much higher than average number for earnings predictability.

Its current 40th percentile price growth persistence rating merely reflects Baxter’s presently low price. That is a good thing for investors buying in now.

The shares peaked last August at north of $50 before selling off with the broader market through October.

After that sickening 38.2% two-month decline to near $31 BAX put in an almost 42% rally in less than five months. BAX then proceeded to fall back by 24.6% in about 2.5-months. That is very untypical for a somewhat conservative low-beta name like this.

At the close on June 3, 2024 BAX weighed in at $34.08, yielding 3.4%. That yield is 148% higher than Baxter’s normalized level. Its P/E is now only 10.5 times Value Line’s 2025 estimate versus an average multiple of 21.2x.

BAX appears primed for another quick and significant rebound.

Here is a snapshot of Baxter’s fundamentals in the post-Covid era.

Per-share sales, cash flow and dividends have all improved since 2020. EPS are down a modest 5.5% from 2020’s number. Today’s levels, though, show we can own BAX for 17.5% lower than its quote from exactly four years earlier.

Getting more while paying less is almost always a good recipe for future stock market success.

Why do I say that BAX is likely to rebound sharply? It has always done so before. Annual highs and lows from 2016 through 2023, documented below, show wide spreads between the numbers each year.

Each of those eight years saw Baxter peak above $50. Six of the eight years saws highs ranging between $78.40 and $95.20.

Even the worst of the highs would deliver solid returns from about $34. Those are far from the upper limits of what is possible going forward.

What Is Baxter Worth?

BAX rarely traded below 20 times earnings since 2016, when a spinoff created the current iteration of the firm. A partial reversion-to-the-mean valuation of 19 times generates an end of 2024 target price of $55.50 and about $61.75 by Dec. 31, 2025.

Reverse engineering the current $1.16 annual rate on the dividend to a more typical 1.37% says BAX could surge as high as $84.60.

Previous best entry points for BAX (green-starred above) ran from 10.8x (at the Oct. 2023 nadir) to as high as 20x in December of 2018. “Should have sold” moments (red-starred) saw P/Es ranging from 18.2x to over 30x earnings, during March of 2020.

It does not stretch the imagination to see BAX once again trade for a much richer valuation.

I am not alone is seeing the opportunity in Baxter.

Yahoo Finance looks for EPS of $2.92 this year followed by growth to $3.22 in 2025. That easily supports a $55-$60 goal price within 8 to 20 months.

GuruFocus research calls present-day fair value for BAX as $59.67. That implies upside potential of 75% plus dividends from the Jun. 3, 2024 quote.

Independent research from Morningstar is even more enthusiastic about Baxter.

It calls any price below $40.20 as providing 5-star (highest ranked) value. At $33.83, Tuesday’s morning’s price, the shares are almost $7 below that threshold.

Morningstar sees present-day fair value for BAX as $67. Reaching that goal would deliver 98% upside plus any dividends collected while waiting for the upturn.

BAX now sells for an unusually low multiple while sporting a huge, by historical standards, yield.

Every quantitatively derived price target sits well above today’s price. Barring unexpected bad news, BAX is a great choice for low-risk and potentially exciting total return prospects.

Options are available as far out as January of 2026 for those who wish to play BAX via that route.

More Paul Price:

At the time of publication, Price was long BAX shares, including some purchased on Jun. 4, 2024, short BAX options.