Merck & Company (MRK)

(A Top Pick June 11/13. Up 27.12%.) He still likes this. There is talk about them selling the consumer business for $14 billion. If they do, shareholders will get some kind of return. Still not overly expensive.

Likes the consolidation in the business. Likes how these companies are smarter in how they spend their R&D dollars. Healthcare is more sensitive to the economy. The more people working, the more scripts they fill, etc.

(Top Pick Apr 9/13, Up 35.21% Total Return) Shown to have predictable assets and durable cash flow. Strong dividend policy. We are also seeing strong script growth across the industry because of the affordable care act. Activist shareholders are stepping in because they recognize the strength of the balance sheet. Now he has to stay in it.

(A Top Pick April 9/13. Up 28.48%.) About a year ago he made a move to financials, healthcare and consumer on the back of lower inflation and better equity markets. Biotech and Pharma have really been in the top 2 or 3 sectors in the market over the last 18 months. With the Obama care in place, it looks like there is going to be more drugs sold, not less.

Switch eBay (EBAY-Q) for Merck (MRK-N) for a 3-5 year hold? This is now approaching its model price of $60, only a 9% upside. 3.2% dividend yield. Thinks you could flip a coin on who does better. You will do well on both.

His preference is to own something like JNJ which has a much more diverse business. If you are relying only on pharma then it is harder. Although they have good pipelines it is not like the ‘90s.

Prefers JNJ-N. Likes health care as a sector. Thinks this sector is set to do very, very well. Concerns about patent cliff have come and gone. Should have some decent dividend growth going forward. Has been consolidating with the market and now there is room to the upside.

Not crazy about the big branded pharmaceuticals. Facing unrelenting competition from the generics. As well, globally governments are trying to cut healthcare costs. When there is a substitute for one of their drugs, governments force everybody to use it in preference to the branded more expensive one. The costs of finding new drugs and bringing them to market our enormous.

The opposite of PFE-N and faced a patent cliff but has a poor pipeline. Would not own it.

Chopping over 8500 jobs so the stock took a jump. Although he doesn’t own this, he likes the healthcare space in general, which has lots of pricing power. Healthcare has been really focused on management. They all thought they were growth stocks in the 90s and flooded the family doctor sales process but didn’t have much in their pipeline to show. They have slimmed down and have focused on high ROE and investment cash flow.

Where can you buy, particularly in the US, forward 12X earnings and a 4% yield? Missed a quarter earlier in the year. Have a good pipeline. Have some positive indications on their melanoma drug that came out in the past couple of weeks. There is a thought that they might split themselves into pieces which would be worth $55.

Entire healthcare index in the US hit a low at twice Book, which was last seen in 1982. Whole group has been recovering. Currently heading towards 4X BV but it peaked at 10. So he thinks there is room for these stocks to keep on moving. He went through the index to see which one had been left behind and had a decent dividend and chose this one.

As a general view, he feels there are some good opportunities in the healthcare space. His office owns Pfizer (PFE-N) instead. Bad news in healthcare is behind it. With the aging population, this sector would be a good area to be invested in for the long-term. 3.5% dividend yield.

Pharmaceutical sector was way out of favour for 12-13 years. Recently, what made it unattractive has made it very attractive. Have predictable cash flows. Paying out about 50% of their earnings, (3.46% dividend yield) and this could go higher. Have recently been having good success in science.

Pharma is one of the strongest performing groups after many years of underperforming. This company has an earnings yield of just over 8%. A US treasury bond yield is at 1.7%. The market has assessed the risk of default of this company as being less than a U.S. Treasury bond. There will probably be 8%-9% cash flow growth over the next 5 years. Dividend yield of 3.76%.