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  • Writer's pictureIshfaaq Peerally



AbbVie $ABBV is one of the largest pharmaceutical and biotech companies in the world. I recently made a video about AbbVie talking about the debt and its dependence on Humira. You can watch the video on my channel or read the article on my website. What I want to talk about today is whether AbbVie is a value trap?

AbbVie stock price peaked in January 2018 and from then has only been going downwards. It is a falling knife. It is paying a 6% dividends. Is it a value stock to buy or a trap? Actually, we can do the same analysis about Bayer $BAYN.DE or BMW $BMW.DE and ask the same questions. But for today, let's focus on AbbVie. First of all, we should know why the stock price is crashing. It is mainly because of two reasons, Humira and the massive debt. Humira is the best selling drug in the world and AbbVie's patents on this drug are expiring soon. The question you should ask yourself is whether the market is overreacting to this news. In 2016, I invested in Apple $AAPL when the market was overreacting on the news that iPhone sales were falling. In 2018, I invested on the market overreaction on Facebook $FB after the Cambridge Analytica scandal. Therefore, if you find good reasons that suggests that the market is overreacting on AbbVie, you should definitely invest. It is up to you. How much free cash flow are you looking for? Over what period of time? What is the margin of safety you are using?

Now, when do you invest? The stock price has been falling for more than a year. Is there a right time to invest? You will never know for sure when the price reaches the bottom and when is the right time to buy. What you should rather do is keep buying if you believe in the future of the company. If you believe that it is a good investment for the next 5 or 10 years, there is no reason not to invest in a value trap. But now, if you expect the stock to recover in only a month, it will be a little harder. You should know how much you are willing to wait. I've fallen in quite a few value traps such as BMW, Bayer or Wells Fargo $WFC . Never forget that when you are holding a stock, you can't buy other stocks with that money. There is always an opportunity cost involved.

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