Investment analyst explains why he's removed Bayer stock from his portfolio
In the article excerpted below, investment analyst Patrick Kroneman explains why he has dumped his Bayer stock. In the full article at the URL given, Kroneman concludes, "With the acquisition of Monsanto Bayer seems increasingly to have bitten of more than it can chew. The handling of Bayer's management of the Roundup issue has resulted in more claims and likely a higher hit to the company. Fighting in court looks to lengthen the issue, give Bayer the same bad name that was formally associated with Monsanto and higher costs. In absence of a change of management at Bayer, it's better to wait it out and chase other investments."
See the original article for a scary chart showing Bayer's extreme loss of value since it took over Monsanto.
Seeking Alpha, 4 Oct 2019
* Roundup cases keep growing.
* Balance sheet needs improvement.
* Management mishandled the Monsanto acquisition.
* Hope for change is a bad investment thesis.
Recently I removed Bayer (OTCPK:BAYRY, OTCPK:BAYZF) from my portfolio. The primary reason for doing so is the mismanagement of the company. While there still is chance of upside in the stock, appreciation seems far removed. So is Bayer still worth the risk or is it better to leave it be?
Bayer has a long and interesting history. Founded in 1863 in Leverkusen, Germany the company has since become a well-known constituent of the DAX, the country's leading index. Morningstar describes Bayer in the following way:
Bayer is a German healthcare and agriculture conglomerate. Healthcare provides over half of the company's sales and includes pharmaceutical drugs as well as vitamins and animal health products. The company has a crop science business that includes seeds, pesticides, herbicides, and fungicides, which was expanded through the acquisition of Monsanto.
Even though this is a correct summary, it does not shed enough light on the company's past. This due to the fact that its history is somewhat checkered. One the one hand Bayer has invented medicine that helped enormous amounts of people such as with aspirin. But it also developed heroin and was responsible for a lot of suffering during the Holocaust when it was merged into IG Farben. Highlighting this is important when bearing in mind the words of Warren Buffet:
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."
The last few decades Bayer had quite a reputable name. However with such a past, it is striking that it made a bid for Monsanto. This because Monsanto has been regularly named as one of the most hated businesses in America. In 2016, Bayer got its current CEO, Werner Baumann. He decided to make the further push into crop sciences and after some selling of Bayer's assets, the bid for Monsanto got approved. The deal closed in June last year.
Looking at the chart above, the market hasn't validated the transformation of the company. There are several reasons for this value drop and so far management has failed to address this.
Looking at the last ten years, everything looks like what one would expect from a mature company. Revenue figures have had some ups and downs over the years, but it seems to average to an upper $40 billion number. More striking to me is that net income in 2018 is almost the same as it was in 2009. Accounting for inflation it would be considerably less. Keep in mind that the current CEO took the helm in 2016 and subtract the earnings of discontinued operations from the total to see that since then the company has slipped.
[Read on and see charts here: https://seekingalpha.com/article/4295010-dumping-bayer]