Bayer investors just can’t catch a break. The last time we wrote about it, on April 5th, 2023, the stock was trading below €60 a share, down 58% from its 2015 all-time high. This selloff is largely the result of the company’s ill-thought-out acquisition of Monsanto in 2016 and the mountain of lawsuits that fell in Bayer’s lap.
Bayer’s fate is a strong argument against the buy-and-hold-forever approach to investing. Even if the investor is smart and fortunate enough to find a truly great company, one stroke of the management’s pen can ruin the investment at any time.
There seems to be no end in sight for Bayer ‘s misfortunes. Earlier this week, the company was ordered to pay another $2.25B in damages related to Monsanto’s Roundup weed killer. Prior to this, in November of 2023, Bayer was forced to abandon further testing of a promising drug due to lack of efficiency. All told, the stock is down by 50% to under €29 a share since our bearish April 2023 article. Was it just a coincidence that its title was “Bayer Stock Can Lose Another 50% in Fifth Wave”? The chart below, included in that article, proves that it wasn’t.
Starting from the top at €144 a share, the post-2015 bear market looked like an textbook five-wave impulse, whose fifth wave was still missing. Wave (1) was a leading diagonal, followed by an a-b-c zigzag up to the 61.8% Fibonacci resistance level. Then, the bears took control again in wave (3), whose impulsive structure is visible, as well.
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Wave (4), whose highest point touched the other important Fibonacci level at 38.2%, was an a-b-c-d-e triangle correction. Its shape and structure were quite perfect, so it made sense to expect more weakness in wave (5) going forward. Downside targets near €30 a share looked plausible, hence our expectations for a 50% selloff from €60.
The bears took less than ten months to get the job done. The recent developments took Bayer ‘s loss of value from its 2015 record to 80%, so it is fair to say that the company is on the verge of implosion. We must be getting close to the point of maximum pessimism with waves 4 and 5 of (5) remaining. However, the Elliott Wave theory states that a bullish reversal can be expected once these final elements of the wave structure are in place.
Similarly to what General Electric did, Bayer might finally decide to break up the company and divest Monsanto. This could allow it to get rid of all the lawsuits and damages stemming from that unfortunate takeover. Such an arrangement could be the catalyst the stock market is waiting for to bid up Bayer. In the absence of it, the bullish setup above might not come to fruition, given the falling sales and EBITDA and already negative earnings.
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