Bayer share

Disclaimer: No investment advice, have Bayer in my portfolio, therefore the analysis is biased.

I have once again taken the time to make a small stock analysis. This time it is about Bayer AG. As I'm sure everyone knows, Bayer has been struggling with legal disputes in the U.S. for some time, so the share price has come under heavy pressure in recent years. However, I would like to ignore the legal disputes for this analysis and focus more on the long-term investment horizon.

Brief Info on Bayer AG:

Bayer AG is a chemical and pharmaceutical group headquartered in Leverkusen, Germany. The company is active in three business areas: Consumer Health Pharmaceuticals and Crop Science.

Consumer Health researches, develops and produces non-prescription products for private consumers. Important brands include Aspirin and Bepanthen. Diversification in this business unit is very broad.

Pharmaceuticals researches, develops and manufactures prescription products. It has a particularly strong position in the fields of oncology and hematology.

Crop Science is the Group's crop protection business and focuses on seeds and crop protection products such as herbicides and fungicides.

Financial overview of Bayer AG:

After some turbulence due to litigation in the U.S., Bayer seems to have slowly found its way back into smooth waters. The stock currently has a 2022 P/E of 12, a KUV of 1.22, a KBV of 1.54 and a P/FCF of about 19. The debt situation is problematic. However, as mentioned above, the last quarterly report shows stabilization and a surprisingly good outlook also for 2022.

Why is Bayer a good investment in the long term?

Now to the arguments why Bayer is a solid long-term investment for me, with which I am also willing to go through a few worse years. Bayer pays a solid dividend, although this was cut somewhat in 2020, the yield in 2022 is still just under 3.75% and is also covered by the FcF.

All three of Bayer's businesses have good future prospects. Consumer Health and Pharmaceuticals are benefiting from the continued aging of societies worldwide. People are getting older and still living unhealthier lives, so the health care business is naturally benefiting.

However, the real driver, also currently due to higher food prices (caused by the Russia/Ukraine war), is the Crop Science Division. Even though Bayer has come under massive pressure due to the Monsanto acquisition and has had to deal with various lawsuits in the U.S. for several years, I continue to think that this has been a sensible long-term investment. Bayer is, after a Chinese state-owned company, the largest agrochemical company in the world. In recent years, the agricultural areas worldwide have not increased any more, but nevertheless, due to the growing world population, more people have to be fed. This trend will not stop in the coming years. In addition to a growing world population, climate catastrophes are also increasingly threatening harvests worldwide. So, in my opinion, it is foreseeable in the long term that food will become more expensive. When food prices are high, it makes sense for farmers to protect expensive crops with various agrochemical products from Bayer. Herbicides, fungicides and above all stable and high-yielding seeds ensure good harvests and corresponding profits for the farmers and Bayer AG.

I am betting with Bayer as on the macrotrend food supply. We are already seeing massive climate changes that are triggering droughts, floods and storms. Even in Germany, harvests are repeatedly affected by unpredictable periods of heat or rainfall. Bayer is ideally positioned to benefit from this trend with stable seeds and various crop protection products. I currently consider Bayer stock to be worth buying. However, investors must still expect that Bayer will continue to be battered in the short term and that the share price will be driven by headlines regarding the legal disputes. I therefore continue to see larger positions as too risky. I recently struck in the Dax slump and opened a small position.