CVS Health Corp (CVS)

(A Top Pick March 10/16. Down 20%.) This is the leading drugstore in the US on the retail side. Last fall, their scripts got excluded from the PBM networks, so they are losing some prescription volumes, which is a short-term negative. Earnings are going to be somewhat flat this year, but they feel they can continue growing earnings at a 10% rate past 2017. She likes the space. Their competitor, Walgreens (WBA-Q), is in the process of acquiring Rite Aid (RAD-N), so expects CVS will pick up some stores at that time. Trading at about 2 multiples discount to Walgreens because of their near term earnings stumble. Thinks the disappointment is already priced into the stock.

There is retail and pharma benefits managment. It does not meet his criteria. It has not broken out. The PBM is facing pressure. Their fees are a percent, which is riskier. Their fundamentals don’t line up. There are better places to put money.

A really great company with a successful long-term track record, which should continue in the future. A couple of things have taken the stock down. Walgreens (WBA-Q) had a new deal, which was going to eat into the market share, so of course the stock took a bit of a hit. Also, there is the potential legislation on repricing of drugs. The whole drug chain is probably susceptible to some repricing. Thinks these 2 things are already priced in.

A big fan. The healthcare sector is cheap. This one has a tremendous free cash flow yield. They pretty much have the market all to themselves, and he likes markets where there aren’t very many competitors. (See Top Picks.)

They have a huge platform of pharmacies in the US, pharma benefits management and home healthcare. The baby boomer generation is not going to suddenly not need their pills any more. It is very cheap right now. (Analysts’ target: $86.34).

Valuation has come back into line. They have retail which had some good comps for a while, but people are not spending as much in the store right now. Also, they are losing share to Walgreens (WBA-Q).

(Top Pick Jan 21/16, Down 13.41%) Many of the comments he made about WBA-N apply here. People are waiting to see the dust settle. These companies continue to do well. They are a good place to be patient. Just because you are not rewarded on price does not mean you are happy with the fundamentals. Trade less rather than more.

The 2^nd largest drugstore in the US, but also a PBM, (Pharmacy Benefit Manager). PBM’s are a little misunderstood in the US. They were set up because corporations didn’t want to deal with managing employees’ drug benefits. PBM’s actually save companies money. Depending on the contract, they can pass through 85%-100% of their money. CVS is going to buy back about 5 billion of shares. Good dividend growth rate and free cash flow. This is trading much lower than the market. Dividend yield of 2.44%. (Analysts’ price target is $88.74.)

This pulled back because it had to reduce its earnings guidance for this upcoming year. They had been guiding for 10%-14% growth for the next few years, and have had to reduce that to 10% going forward. This is because their drug retail side has been excluded in certain pharmacy networks. The valuation is very attractive at about 13 or 14 times forward earnings. A well-managed company.

He is a believer in this company, both the stores and the home delivery product, and believes that the stock will come back.

He is all over the healthcare sector right now. They remind him of the US financials 2-3 years ago. Everybody hated them, too much regulation, etc., etc. It might get worse before it gets better. If you have a 2 to 4 year timeframe, it is now time to look at a number of healthcare names. He likes this one as well as Express Scripts (ESRX-Q), Zimmer Biomet (ZBH-N), etc. Very cheap valuation.

It has not done particularly well recently but has been a good long term performer so now is a good entry point. Demographically it is a good place to be. 98.8% of prescriptions are covered by benefits. (Analysts' Target: $87.72)

They came out with some news that knocked it down. It is an incredible company for health care reform. Short term it is pain, but he thinks it will come back.

(A Top Pick Dec 17/15. Down 19.33%.) Encountered some competitive pressures in their last quarter on the retail/Pharma side. They are projecting that next year they are going to lose about 40,000 scripts. She is projecting that earnings maybe flat to 5% upside next year. In 2018 they plan to resume a growth rate at 10%. Trading at a very attractive multiple now at about 12.5X forward earnings.

He was quite surprised at such a blue-chip name getting hit so hard this week. In their conference call, they announced that they were lowering guidance going forward. They are really in a prescription-fill and price war with Walgreens. They expect 40 million prescriptions to go elsewhere this year. A very difficult space to be in.