Concordia International Corp (CXR.TO)

They made too big of an acquisition. The balance sheet is too big and they are fighting it. His model price is $84. He thinks it will go up to $63 eventually. It is trading at 5 times because of the balance sheet.

Caller was surprised to see this go down 20% when the market only went down 10%. That is called Comparative Relative Strength, and is one of the things that technical analysts have to pay attention to. The healthcare sector in general has been an under performer. Was in a big uptrend in the last year, and then fell like a brick. It tried to establish a base late last year, and it broke down again. At this point, he would not Buy the stock. Would like to see it base for a while.

Concordia Health (CXR-T) or Magna (MG-T)? He prefers Magna. In a world of uncertainty, it tends to be a little more stable.

Valeant (VRX-T) or Concordia (CXR-T)? Doesn’t own either currently. Valeant seems to be a bit more diversified than this one, and if he had to choose it would be Valeant.

Canadian market is a tougher one to be in for healthcare. There have been some strong pockets and some weak ones. Biotech and pharmaceutical have had a tough 3-4 months. Broke down in the fall, so he is giving an X to that sector for adding new names. This one has had a very tough go since September. Would prefer something like Bristol-Myers (BMY-N) instead. You could also look at health care devices like Intuitive Surgical (ISRG-Q), because those companies are behaving quite well.

This has made an acquisition which contains about 200 marketed products, and takes them to a global level of marketing and sales. The only negative is that the debt has been up to about 5.5 times. There seems to be a clear path for cash flows to take that down to 2.2.

Wouldn’t chase this now. In the wake of the turbulence and the issues around the acquisition of drug companies to raise prices, there is a bit of a market resistance, particularly on the Canadian end. He would be looking at some of the really large cap US healthcare companies that are kind of on sale now.

This had been one of the best performing stocks in Canada for a couple of years. When the stock got to around $85-$90, he took most of his position off. Subsequent to that, the stock went to $25, but there was so much worry about the debt load because they made an acquisition. The whole sector is under scrutiny in the US. Prefers companies like CRH Medical (CRH-T).

This is one of the best opportunities in Canada. An extremely cheap undervalued stock that gets painted with the same brush as Valeant (VRX-T). They made an acquisition he liked, which is going to generate a lot of cash flow going forward. Debt is high at 5 to 6 times EBITDA, above the range that he would typically like. However, as a company that sells legacy pharmaceuticals and orphan drugs, high margin drugs that generate a lot of cash, they are going to pay off that debt quite quickly. As that happens, you are going to see the multiple expand.

Stock vs. Stock. VRX-T Vs. CXR-T. He bought both and then traded out of them. He would take CXR-T right now. There is concern about the ability of VRX-T to grow. Both have high debt. His concern in the healthcare sector is how drugs are sold for very different prices in different markets. You have to look at them on a cash flow basis because of the debt.

This is a little more stable compared to Valeant (VRX-T). Chart has a nice little upward trend. It is currently at the retest that was done in October, and if it gets through that there is not going to be a lot of resistance until about the $80 level.

Has a lot of debt, but cash flows are coming in quickly and the debt is being paid down. Trading at 4.7X earnings and just under 1.1 Price to Book. A growth stock with a value investor’s valuation.

When the chart shows a big drop like it had, you question if that is the bottom. The chart shows a lot of consolidation in 2014 at around the $30-$40 level, and we are above that right now. There is a lot of stuff happening in this industry, and people are still trying to figure out what the model is, because it is all going to change down the road. This is a huge political risk. You know that somebody is going to do something with drug prices, no matter what side of the aisle it is on. If it dropped below $40, he would be stepping out of the stock.

He still likes this and is pretty sure he will be back in the name down the road. The big issue the street is focused on is their debt level. The debt is $3.5 billion, which is a fairly high amount of their cash flow. They are going to pay that down over time. The street is fairly neutral to lukewarm on the company, but as they prove out that they can pay down this debt and that they are doing so, it will give the stock a higher multiple and the stock will move up into the $80 range.

It has not been around long enough for seasonal trends to be evaluated. It bottomed in October and is in an upward trend. It is at or above its 20 day moving average. Above $51 it would be a very opportune investment.