CVS Health Corp (CVS)

They are a strong pharmacy benefit manager, as well as a pharmacy. They recently bought Omnicare, who supply nursing homes with a billon prescriptions a year. They are predictable. 15 times earnings. It is a great place to be if you are nervous about China.

They are also in the pharmacy benefits management. They have clinics and are into long term care. They will grow in the low to mid-teens. They are focused on outcomes, which is significant in the US.

From an earnings revision and stock standpoint, this is good. You’re looking at a 10%-12% growth at a mid-teen multiple, which is in line. He is neutral on this. Recently issued guidance that came up a little bit short of street expectations, so the stock has come off a little. A well-run company.

Walgreens (WBA-Q) is proposing to buy Rite Aid (RAD-N). WBA-Q and CVS-N are obviously the leading US drug retailers. She likes the drug retailing and the Pharmacy Benefit management businesses of CVS-N. They have done a couple of transactions in 2015 that she thinks will be accretive in 2016. They bought Target’s 2000 pharmacies. They say only 5-10% of Target customers use the pharmacy and aim to increase that. They announced a 21% increase in the dividend and 10-14% earnings growth for the next few years. The number of scripts per person increases as people age. 2% dividend that is increased on a regular basis. Buy on a pullback.

It fortifies his thoughts on WBA-Q of today. It is similar. The difference is that they teamed up with Caremark some years ago and has that aspect to their business. They also are buying Omnicare. They are both well managed.

Sold his holdings about a month ago in order to take some profits. Technically it has started to roll over a little and fell below the 200 day moving average. He was starting to see lower highs and lower lows. Likes the name quite a bit. It is trading at nice fundamentals and valuations, 18X forward earnings and a growth rate near 15%. This is a name he would be happy to re-enter.

Likes the space, but sold his holdings a few months ago when it broke a long upward trend. Chart shows a little support at around $80. There have been a lot of costs that have been uncertain for them. Thinks long term this will be a good name and he would like to get back into it. You have to wait until it breaks out at around $115. He would watch for something between the 125-150 daily moving averages.

One of the leading drug retailers in the US with about 8000 locations. That is about two thirds of their earnings and the other is their pharmacy benefit business (PBM). Both work well for them. They can leverage off their retail base accessing drugs for their customers. Recently acquired Target’s 1600 pharmacies and will rebrand them as CVS pharmacies. Also, bought Omnicare which gives them new long care operators. Dividend yield of 1.49%.

CVS Health (CVS-N) or Walgreen Boots Alliance (WBA-Q)? He owns both and has done very well with them. They have both been quite dynamic in their operations over the last while. This one made some very bold moves, some of them internal. They stopped selling cigarettes, which was a good strategic move. On a valuation basis this one is a little more attractive, but it is really a toss-up.

(A Top Pick Oct 16/14. Up 33.94%.) He continues to like this particular space. Given what is happening to the Affordable Care Act in the US, this company has almost 100% domestically US oriented revenue, so not affected by foreign exchange headwinds. Aging demographics is going to help the stock.

It is a great long term story. They have the benefits manager as well as the drug store chain. He thinks it is a great story over the next two years.

Is down with the Wal-Mart warning. There are only the two drug store chains. These guys are going inside Target. It is buying back stock. He sees double digit growth as people grow older and Amazon cannot topple them as you require a druggist.

It is a great company in the sweet spot with a demographic trend of more and more people requiring pharma benefits. Most scripts are paid by insurance. He likes the management.

CVS (CVS-N) or Walgreen (WBA-Q)? He owns both and they are both great opportunities. Demographically they are both in a sweet spot with the aging of the population and the need for prescription drugs. Couple that with Obama care, which mandates that people have insurance that will allow them to get those drugs. They just did a deal for Omnicare that provides long-term care for the elderly, and writes a ton of prescriptions. This trades at a couple of multiple points cheaper than Walgreen, and also its earnings predictability is a little bit higher, but he would own both.

CVS Health (CVS-N) or Walgreen Boots Alliance (WBA-Q)? These are so similar. They are both benefiting from similar trends. This has your pharmacy benefits manager. They are both benefiting from increasing drug usage and the whole story of the population getting older. You are getting some very good assets here and some very good secular growth over a number of years. Doesn’t think you will get hurt on either one.