Forgotten Beauties?

Gurus love them, not the market!

This week’s blog post covers Occidental Petroleum, Becton Dickinson, and Disney. Before diving into these forgotten beauties, I comment on the overall market and share an update on my trading activity.

Big beautiful bill

Were tariffs only a dream? In the last 28 trading days, Wall Street has been on one of its most ferocious rallies ever. The S&P 500 has returned approximately 14.5% from April 8th and is now just 3,2% shy from its all-time high (ATH). To find stronger periods in the market, we have to return to the COVID-19 pandemic or the great financial crisis.

So, what happened? The rally was aided by a 13.6% year-over-year (YoY) earnings growth for the first quarter of 2025, but the main reason is President Trump's successive walkbacks of his Liberation Day tariffs.

Financial markets have an extreme ability to put things in the rearview window and look forward. Tariffs are old news, and in the second half of this year, Washington is turning its attention towards tax cuts and deregulation. These items are much more popular among investors than the frigging tariffs since lower corporate taxes mean higher net profits. Thus, the political tape looks much more favorable now.

It is hard to pin down the size of the tax cuts. The Republicans have a razor-thin majority in Congress, and fiscal conservatives have already raised their misgivings about blowing out the deficit too much. In any case, the Republicans will come to some agreements on tax cuts, as they always do, whenever they have a majority. Let’s see how big and beautiful this bill finally becomes.

What I do in the market these days

Last week, I added to Novo Nordisk. The Danish pharma company is now 4,5% of my portfolio (ex. ETFs). I decided to purchase it after having revised my quantitative analysis to reflect the profit warning issued by the company two weeks ago. My revised analysis shows Novo Nordisk is worth DKK 730 per share. Thus, NOVO is the company in my portfolio with the highest theoretical upside to my calculated fair value estimate. There is no point in doing stock analysis if you don’t act on such a large undervaluation. Despite the profit warning, the market underestimates NOVO’s ability to defend its market share in the diabetes and obesity space from 2028 onwards.

Occidental Petroleum

OXY is down nearly 13% this year and doesn’t seem to get any love from investors. The oil producer remains out of favor even though it trades below 12 in price-to-earnings and is one of Berkshire Hathaway's top holdings.

OXY is a major player in the Permian basin. This valuable area offers low-cost, long-life production assets on a large, contiguous acreage.

Due to its valuable assets, OXY is one of the most efficient operators in the business and can remain cash flow positive with oil prices in the low thirties. The company has more legs to stand on than upstream operations. OXY has a resilient business model with chemical and midstream operations complementing its oil exploration. It is also at the forefront of direct air carbon capture (DAC). The Stratos project, OXY’s large-scale DAC facility in Texas, is scheduled to begin startup operations in the third quarter of 2025, with full-scale commercial operations expected by the end of 2025.

Lately, investors have grown more skeptical of green investments like the Stratos project. In the grand scheme of things, OXY’s huge debt load and lackluster production volumes in recent quarters, are probably better explanations for the weak stock price.

OXY has significant potential, but its stock performance has been hampered by inconsistent execution. If the company can deliver more reliably on its operational targets and strategic initiatives, there is strong reason to believe the share price would respond positively. Berkshire owns nearly 30% of the company and is not giving up on it.

Becton Dickinson

BDX s a dividend aristocrat. The company has increased its dividend for 53 consecutive years. Still, the company is down more than 20% this year. Not everybody fancies an aristocrat.

BDX is one of the world’s largest medical technology companies. It develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products. The company should in theory be quite stable and recession-proof, However, BDX used Q1 earnings to reduce guidance on a slowdown in diagnostics and biosciences equipment. High tariffs on Chinese imports put further strain on projected earnings.

BDX is among Starboard Value’s largest investments, reflecting the activist fund’s strategy of targeting established companies where operational inefficiencies or structural issues have led to undervaluation. Starboard has a strong track record of turning such situations around, often through strategic changes or improved execution. Recent examples include Salesforce, where Starboard successfully pressured management to prioritize higher operating margins, and Splunk, where the firm played a key role in facilitating the company’s sale to Cisco.

With this investment, Starboard Value’s primary goal is to unlock shareholder value by pushing for the separation or sale of BDX’s Life Sciences (Biosciences & Diagnostic Solutions) business. BDX’s current valuation reflects the lower-multiple Life Sciences segment rather than the higher-growth, higher-margin MedTech business, resulting in a “sum-of-the-parts” discount that undervalues the whole company.

Starboard argues that “getting rid of” the Life Sciences division could boost BDX’s overall valuation by as much as 30% and create additional value through improved management focus and operational efficiency. However, executing this strategy is not without challenges. Finding a buyer willing to pay a premium for the Life Sciences business may prove difficult, as initial reports suggest potential offers could fall below the division’s anticipated valuation. Alternatively, spinning off the unit as a standalone public company could expose BDX to the risk of a significant write-down if the market assigns it a lower value than expected. These uncertainties highlight that, while the strategic logic for separation is clear, realizing maximum value from the transaction may be more complicated.

Will Starboard make progress on its turnaround project this year?

Disney

After numerous disastrous earning reports and a suspension of dividends in the fall of last year, Disney’s board decided to bring back Bob Iger as the boss to right the ship. DIS is about 43% below its ATH reached on March 8th, 2021. In the last few years, DIS has gone through many false starts, on several occasions it has looked like the company would find back to its former self and show consistent profitability, only to disappoint again and again, falling flat on its face, dropping like a stone.

In 2024, several activist investors took stakes in DIS without being able to gain board seats and effectuate changes. Most notable among these activists is Nelson Peltz’s Trian Capital. Nelson Peltz means DIS must restore its magic by strengthening its creative content to bolster box office performance and create a positive buzz around the company as an entertainment brand. Peltz has criticized the board for doubling down on linear TV as that business declined, and consequently, being far too late in entering the streaming business. In any case, Peltz argues that the success of Disney+ is dependent on better content. According to Peltz, the root of the problems is bad management. He believes DIS needs stronger board oversight and a more effective, transparent succession plan to avoid repeating past mistakes.

Can the Q1 earnings report be the start of a turnaround story? DIS delivered robust financial results, with revenue climbing 5% YoY and adjusted earnings per share soaring 44%. Notably, the streaming business, including Disney+ and Hulu, turned profitable - an achievement that had eluded the company in recent years. The entertainment giant also reported a strong box office performance with a sequel to The Lion King, growth in its sports and experiences divisions, and announced plans for a new theme park in Abu Dhabi. CEO Bob Iger highlighted that this performance reflected renewed creative strength, as the company advanced strategic growth initiatives set in motion over the past two years.

DIS raised its full-year profit outlook on the strong start to 2025. The market has responded enthusiastically: following the earnings release, Disney’s stock surged as much as 12% in a single day and has climbed approximately 36.6% over the past month, erasing earlier losses and restoring shareholder optimism.

Let’s see if this can be more than a false start.

Disclaimer: Important Information for Retail Investors

The information in this blog is for educational purposes only, not financial advice. Investing in stocks carries risks; past performance doesn't guarantee future results. Conduct thorough research and seek advice from financial professionals before investing.

The author is a retail investor, not a licensed advisor. Due to changing market conditions, content accuracy isn't guaranteed. All investments have risks, including the potential loss of principal. Assess your risk tolerance and goals before investing; diversification is key to managing risk.

The author may have positions in the mentioned stocks, which can change without notice. Readers should do their due diligence and consult professionals before acting on blog information.

Before investing, verify information from credible sources, understand prospectuses and financial statements, be aware of your financial situation, and consult professionals for aligned investment choices.

Readers are responsible for their investment decisions; the author is not liable for any outcomes. Investing in individual stocks carries risks; caution, research, and professional guidance are advised for informed decisions.