CVS Health Corp (CVS)

(January 12, 2018, Down 18%) Still loves the name and double-down on it this spring.

Looks cheap trading at 9 times earnings with 10% growth rate. With the pending purchase of Aetna Inc (AET-N) investors are a little concern that they paid too much. The pharmacy benefit management (PBM) space hasn’t done really well lately.

Have been caught up in the negativity about drugs pricing in the US. Because of this you are paying less than 9 times earnings. Good margins. Very consistent cash flow streams. Yield 3.1% (Analysts’ price target is $86.9)

They are trying to make inventory more accessible by technology. The pharmacy side of the business is still facing headwinds. The mixed story in a tough sector is making this not very attractive.

The stock sold off a fair bit with their Aetna acquisition. They are going to be a winner here and it is worth looking at.

He likes the health care sector and improving demographics. This is one of the leading drug store chains in the US and has the scale to keep costs down. It has reached an agreement to buy AETNA to help vertically integrate them into insurance. It trades at a great valuation of 10 times earnings and has a payout ratio of only 30%. Yield 2.9%. (Analysts’ price target is $88.10 )

An interesting company. A retail pharmacy but now also a pharmacy benefit manager and in the process of acquiring a health insurer. So, they're trying to go along the whole chain. What could happen is that the insurance side directs people to CVS' mini-clinics to perform simpler medical work that a doctor would do, such as giving injections. This could drive down U.S. medical costs (and the U.S. has issues to face here), but also drive traffic to CVS stores. As for Amazon entering this space, we'll see what the impact is.

It scores in the top percent as a cheap stock but in the bottom in term of price momentum. It is a value stock at this point.

It is only 10 times earnings and great value here. Concerns of Amazon entering into drug distribution appear to be fading due to the strict regulatory requirements. Once their recent acquisition is completed, they will be able to deleverage themselves. Yield 3.2%. (Analysts’ price target is $88.85 )

(A Top Pick January 20/17 Down 22%). A recent acquisition of a health insurer still needs to be approved by regulators. It trades about 10 times earnings. He expects them to be able purchase shares back and sees it trading at excellent value here. A well-run company.

He's been hard on this name. He's steered away from consumer staples, a bad neighbourhood. Its retail end has done OK due to consistent demand, but its pharmacy side has struggled. Generic drug pricing pressure is merely one factor. Its dividend isn't enough to make him buy. He could see a pullback when rates rise; inflation hurts bond proxies like this.

This will reward patient investors. A highly-disrupted business, having just bought insurer Aetna for vertical integration. They are redefining themselves by locating a store within 3 miles of 80% of the US population, a population that now must take care of chronic ailments, like diabetes. So, this proximity to customers is efficient and profitable. Trading at 11x earnings with good cash flow despite current debt levels. Also likes competitor Walgreens.

He thinks as a value investor you have to be careful. However, he thinks $59.82 would be a great buy price. He would wait until a pullback and sees $88 as a target.

(At the time of this comment, Aetna holders have just approved the deal with CVS.) This is a very large company. It’s underperforming most other large companies. It hit a solid bottom of about $66 and so it’s at a good buy point, $68, at the low end of its range. Volume is not terrific. You definitely want to get out if it falls below $66. If you buy this now, the first expectations would be a $4 gain, with potential rise of another $5 to $6. (Analysts’ price target is 80.21$)

CVS Health Corp (CVS-N) vs Walgreen Boots Alliance (WBA-O) or stay out of health care? He prefers Walgreen between the two, due to their Rite Aid acquisition. They feel that a safer option is AmerisourceBergen (ABC-N) as they are more on the distribution side. (Analysts’ price target is $89)