Stanley’s Latest Bold Bet, Should You Follow?

Billionaire Stanley Druckenmiller has been shaking up his portfolio lately, selling his entire stake in NVIDIA and most of his Palantir shares in order to diversify into more value-oriented stocks.

One of the most interesting buys Druckenmiller has made has been a 1.43 million share stake in Teva Pharmaceutical Industries (NYSE:TEVA).

Why is Druckenmiller buying this generic drug major at the moment, and is the stock worth looking at for retail investors?

Key Points

• Stanley Druckenmiller bought 1.43 million shares of Teva Pharmaceuticals at $17.51 each, capitalizing on its undervaluation.
• Teva has reduced its debt from $33.8 billion to $16.4 billion and achieved 13% YoY revenue growth in Q3.
• With cheap valuation metrics and rising demand for generics amid climbing healthcare costs, Teva aligns with Druckenmiller’s macro-driven and value-investing approach.

Druckenmiller’s Relationship With TEVA

It’s interesting to note that this isn’t the first time Stanley Druckenmiller has added a large chunk of TEVA to his portfolio.

In 2013, he bought about 1.24 million shares at an average cost of $39.38. Within a year, he had sold the stake for an average price of $52.97 per share.

In early 2015, he started buying again, this time acquiring about 791,000 shares. This time, however, Druckenmiller sold later in the same year and realized a more modest return on his shares.

These transactions suggest that Druckenmiller has previously treated TEVA as a short-term holding, buying it when it looked cheap and selling his shares for a quick profit when the stock rebounded.

While the billionaire is best known for making plays driven by macroeconomics, such value buys are also known to be part of his diverse investing strategy.

Is TEVA Undervalued Again?

Given that Druckenmiller appears to have treated TEVA as a short-term value investment in the past, it’s worth looking at how the stock’s valuation stacks up today. The first thing that jumps out about TEVA shares today is the fact that they are priced far below where Druckenmiller bought them in 2013 and 2015. Indeed, Druckenmiller’s average cost basis on the shares he purchased late last year was just $17.51.

This isn’t so surprising, given the difficulties Teva Pharmaceuticals has been through in the past several years. The company was among those swept up in lawsuits pertaining to opioid drugs, resulting in a 2022 settlement for a total of $4.35 billion.

By the time the settlement was reached, TEVA shares had fallen from their highs of over $60 to trade at less than $10. Though the stock has recovered some of its lost ground since then, it’s clearly still suffering from the effects of its opioid trials and the costs of its subsequent settlement payments.

While there are solid fundamental reasons for Teva’s selloff, there are some signs that it might have become undervalued. At about 1.5x sales and 4.1x book value, Teva’s valuation multiples are far from excessive. Furthermore, the company’s revenues have been growing again, with positive year-over-year results in each of the last six reported quarters.

Although revenues are still well below where they were in the mid-2010s, the generally positive momentum the company has been able to build over the last year and a half could indicate that it’s ready for a rebound.

That said, investors may also want to be somewhat cautious with Teva. Despite improving revenue, the company has only managed to deliver positive net income in two quarters since 2021. While this doesn’t necessarily disqualify Teva from being an undervalued buy, it seems clear that the company will have to continue improving its performance in order to be a good long-term investment.

What Are Teva’s Advantages Going Forward?

One of the biggest improvements in Teva’s overall business picture from here on out is the fact that its opioid lawsuits are finally settled.

Although the company will be paying on its settlements for some time, investors finally have clarity about how high the company’s legal liabilities are. With its legal troubles over, Teva can refocus on driving growth and putting itself back in a position to achieve reliable profitability.

As far as its actual strategy for returning to profitability, Teva hopes to begin working on breakthrough pharmaceuticals for common diseases like arthritis and migraine headaches while also maintaining its role as a major manufacturer of cost-effective generic drugs.

The company also hopes to optimize its business by focusing on the drugs that are already driving the most growth within its portfolio. This combination of innovation and disciplined business management could result in a much brighter future for Teva going forward.

Teva’s financial position is also gradually improving, another potentially good sign for investors. In 2016, Teva borrowed heavily to finance the purchase of Actavis, a generic drug manufacturing company.

Teva is generally considered to have paid too much for that acquisition and has been gradually chipping away at the resulting debt ever since. From a high of about $33.8 billion in 2017, the company has managed to reduce its long-term debt to a much more manageable $16.4 billion.

A final advantage Teva has is that its generic drug business is already performing quite well, giving it a strong foundation on which to build. In Q3, for instance, strong demand for generics propelled the company to 13% year-over-year revenue growth. Management expects these trends to continue, causing it to raise full-year revenue guidance to the range of $16.1-$16.5 billion.

Why Did Stanley Druckenmiller Buy Teva Stock?

Stanley Druckenmiller appears to bought Teva based on a cheap valuation in addition to a shoring up its financial position that has laid the foundation for renewed growth.

If this was Druckenmiller’s reasoning, then he’s already being proven right. With shares of TEVA now trading around $21.80, the stake he acquired in 2024 is already up by nearly 25%.

Druckenmiller is also known to follow big picture trends closely, meaning that he might have bought Teva as a play on the generic drug market at large. This too makes some sense, as rising healthcare costs will likely contribute to greater demand for generic drugs. By 2033, the market for generic drugs in the US alone could reach nearly $190 billion.

It’s also a decent possibility that Druckenmiller’s decision to buy Teva was a combination of the two above lines of thought. By buying a potentially undervalued stock in a market supported by favorable macroeconomics, Druckenmiller may have seen a chance to get the best of both worlds. It’s also possible that TEVA’s upside hasn’t been exhausted, as analysts still project an average 12-month target price of $24.95. If this projection holds true, investors could see an upside of over 14% on TEVA in the coming year.