CVS Health Corp (CVS)

Had a fairly large set back from the last year or so, and is kind of consolidating at about 2X BV. It has nice upside potential of 51%. The downside risk is to about $74, and that is where he would love to be a buyer. It has fairly easy upside to about $92. He wouldn’t worry about this one in the slightest.

(Top Pick Aug 31/16, Down 15.40%) He really liked the uniqueness of the business model. He got out. It was unable to overcome the competitive threats. It could benefit from a ‘Trump Bump’.

The drugstore group is pretty defensive, and he is cautious in general on more defensive, bond-like sectors. Also, very cautious on bricks & mortar retailers because of Amazon (AMZN-Q). A great company, but you are really challenged with the group and the theme. This stock can’t get off the carpet.

A unique company, because it is not only a drugstore, but it is also a health company. Has a free cash flow yield of about 7.5%. Nice dividend yield. Same-store sales over the last little while have not been good, but are stabilizing. Big growth is going to come from the health part of their business. The stock is undervalued and can be up another 30%-40% from where it is today.

One of the biggest pharmacy drug distributors in the US. There is a lot of political noise around that, but looking at a 10-20 year stock chart, it has been a very good story.

A play on demographics. It’s a cheap stock, trading at 13X next year’s earnings. A free cash generator. A great way to get diversification in a kind of sector we don’t have in Canada. Dividend yield of 2.5%. (Analysts’ price target is $88.00.)

Somewhat of a unique company. It is not just a pharmacy. It is a long-term care facility and a consulting firm. The stock has fallen a fair bit. It has a great cash flow yield of about 7%. On the pharmacy side, they had a few issues where same-store sales had gone down a fair bit. The long-term care thing is starting to grow and he can see very good growth there. Dividend yield of 2.5%. (Analysts’ price target is $88.)

One reason he likes this is that it is out of favour. We always have to gravitate to things that will do well in the future as opposed to what has done well in the past. This is a combination of CVS the drugstore and Caremark, a pharmacy benefits manager. They sell over 1 billion prescriptions a year and have over 10,000 locations in the US. As it stays out of favour, it gets more and more compelling from a valuation standpoint. Based on next year’s expectations of earnings, it is trading at a little over 12X earnings, well below the market multiple. Dividend yield of 2.5%. (Analysts’ price target is $88.)

(Top Pick Jun 14/16, Down 15%) It stumbled due to competition. She likes both businesses. The company is very well managed. The demographics are good, the industry is consolidating and this should be a surviving player. It trades below WBA-Q and this is a good entry point to get back in.

(Top Pick Aug 15/16, Down 20%) It was supposed to be his defensive play. The pharmacy benefits companies in the US have been suffering from drug price pressures.

He likes this a lot. Trading at 13X earnings, a discount to its major competitor Walgreens (WBA-Q) at 16X. Trading at a big discount to the market. You get a really nice dividend. The company buys back a lot of stock. Also, has Caremark, the pharmacy management business, which is under a bit of pressure because of drug prices. You really have a diversified business model between the PBM side and the store side. Long-term fundamentals on the healthcare business are very favourable, where you have an aging and growing population. This is very attractive.

The problem they’ve run into is a controversy about pharmaceutical benefits management, and what is going to happen with the intermediary companies. The problem is that Trump and some congressmen feel that what they are doing raises the price of drugs for other people. In the meantime, they are running a huge chain of drugstores, and increasingly, home-based medical care. He thinks the pharmaceutical benefits thing will blow over. He is still a buyer.

A pharmaceutical company, long-term care company and a consulting services company. Has a free cash flow yield of about 7%. The CVS business is a good solid business with lots of cash. There are only 2 competitors in the US drug store business. There has been a little slippage on same-store sales, but feels they have straightened that out. Their long-term care business is really important, and he thinks there is good growth here. Thinks the stock is worth around $95. Yield of 2.4%. (Analysts’ price target is $87.50.)

He used to believe it was worth hanging onto, but he has moved on. It is stuck in limbo. The question is what the margins will look like.

This had issues when they became an insurance company and a drugstore. They also went into the UK and bought Boots. The conflict of interest between being a healthcare provider and trying to get people to go to your store has hit it. A solid business and is not going away.