CVS Health Corp (CVS)

(A Top Pick July 24/14. Up 41.79%.) Recently bought Omnicare, a provider of long-term care, which wrote over 100 million prescriptions last year. They have a demographic tailwind. Also, have new healthcare regulations in the US, which is making it easier. A great space to be in. Still a Buy.

The price has done very well, but the valuations are still very reasonable for a name like this. The Affordable Care Act is something that will benefit companies like this for a very, very long time. You can expect to see an increase in generic drug sales and specialty drugs as well. The recent acquisition of Omnicare (OCR-N) is very solid. They bought Target’s (TGT-N) 1,600 pharmacies, which will give them more exposure and scale with the ability of more purchasing power. 20X forward PE with a 14% long-term growth and 1.4 PEG ratio. Dividend yield of 1.33%.

A drug retailer in the US as well as having a PBM (Pharmacy Benefits Manager), where they go to employers and help them structure their benefit plans. The stock has done very well. She likes drug retail. PBM is very competitive and is all about lower costs, so you need scale. Fully valued here and she would want at least a 10% pullback. In this area, she would prefer the Canadian name, such as Loblaw’s (L-T).This one is on her watch list.

Pharma benefits management companies or pharmacy companies? Both of these spaces make a lot of sense. They have done very well. He owns CVS Health (CVS-N) which actually has a combination of the pharmacy and the Pharma benefits. He continues to like this name. Not expensive.

The 2^nd largest pharmacy chain in the US. Pharmacy Benefits Management is increasingly becoming very important. They negotiate drug prices on behalf of their customers, which are insurance companies, large corporations and government agencies. As drug prices are becoming more and more expensive, it is more and more important for these companies to negotiate for lower costs on drugs. This company has bargaining and negotiating power, and as a result their PBM business has the highest margin in the space. The 3 large companies are United Health, this company and Express Scripts, and they are consolidating. There is huge growth in the industry with the aging population. Over the next 5 years, prescriptions are growing from $100 billion to $400 billion. Yield of 1.35%.

They have both the back and front end of US drugstores. Back end contributes about 70% of revenues and profits. This is a play on the aging population demographics, plus Obama care. This gives a great many more Americans access to insured health benefits. Dividend yield of 1.35%.

This sort of straddles the world between his 2 favourite areas, consumer staples and healthcare. Trading at 20X estimated earnings at nearly an all-time high. The chart looks like it is going higher. If you are uncomfortable, step into it with perhaps a third or half position.

They are targeting how to generate traffic. They have the pharmacy benefits side which is seen as a competitive advantage. New money should get a better opportunity over the next little while.

They have a tailwind with the Obama care and increased health services in the US, along with an aging population. Very well-managed company. Not a cheap stock anymore.

100% of revenues come from the domestic US market. This gives a decent dividend of 1.4%. The stock just keeps moving up. Excellent execution on the part of management. Pretty decently valued at 19X earnings for a 14% growth. One of the cheaper names in the consumer staples space. He likes this name.

A business he likes very much, extraordinarily run. It had a tremendous run. They are well structured in terms of balance sheet. It has been a boon in that they are a pharmacy benefit manager with a retail division. It deserves the multiple it has. Lots of cash getting returned to shareholders in shareholder-friendly ways.

Switch from Abbott Labs (ABT-N) and Johnson & Johnson (JNJ-N) into something more domestically focused? Currencies will be a headwind for multinationals, because they have their revenues come from outside of the US. However, she likes healthcare as a general investment theme and she wouldn’t compare these 2 companies to CVS, which is a Pharmacy Benefits Management (PBM) and a retailer. The other 2 are manufacturers. If you own these latter 2, she would continue to Hold. CVS has done very well, partly on the back of lower energy prices and more spending at drug retail, but thinks it is fully valued.

Walgreen (WAG-N) or CVS Health (CVS-N)? If he had to pick one, it would be this one. It has been a very steady performer. Has nicely growing earnings, about 15% this year and 15% next year. Very highly focused on the consumer. Return on equity has gone from about 11% to about 15% over the last 2 years and is likely to continue to perform quite well.

(A Top Pick Dec 3/13. Up 38.14%.) Likes this area quite a bit. A domestic play, so you don’t have to worry about the improving US$ against every other currency. They no longer sell cigarettes in their drugstores, and this is a major road that they are going down. Looking to capture insurance contracts, federal contracts, federal health, and this can be highly additive to this company’s operations.

The biggest thing with this company and the retail space in the US is the price of gas basically coming down. While the pharmacy component is a big part of this company, you also see a good “front of store” component. With retail sales heading into the holidays, he expects there will be some positive
retail numbers and consumer confidence in the US. You could hold this for a long period of time.