Merus Labs International (MSL.TO)

(A Top Pick June 12/15. Down 50.15%.) This got caught up in the healthcare problems. The sentiment around the sector has been very, very bad. The underlying performance is still quite good. He likes the prospects.

Trying to focus on European markets which they feel is less prone to regulation as each jurisdiction in Europe is regulated separately. Have done a number of acquisitions. However, some of the drugs in their pipeline have a declining profile, so you have to be really careful to understand how their base business is doing and how much they are paying for acquisitions. It is hard to gauge whether they have overpaid are not for the right acquisitions, but he doesn’t feel they got them cheap. Also, they have utilized the stock price to pay for some of those. Be very careful on this one.

In the Canadian drug business. A bit smaller name, so probably doesn’t get the following that some of the larger names do. In his ranking, it is pretty much in the middle of the pack from a fundamental and technical standpoint. Just did an acquisition last year and he was a little surprised the stock price didn’t move up, but actually moved down. Thinks it was a function of the space in general and investors appetite for those kinds of stocks. Trades at a cheap valuation. If you are patient, it is probably a good time to Hold and you will see some capital appreciation as they continue to build out their brands and also get a little more recognition from the market for what they have and what they have purchased recently, which they got at a pretty cheap multiple.

A small-cap Canadian specialty pharma company. He likes management, but this has taken on more leverage than they should have. Would like to see an equity issue out of the company in order to de-lever the balance sheet a bit more.

In the specialty Pharma space, which has had a lot of troubles. Multiples have contracted quite a bit. Compared to their competitors, they have had a much cleaner balance sheet. Haven’t actually made their big acquisitions yet to load up the balance sheet with debt. They were able to raise about $30 million earlier this year. New management has executed well on the deals and their European jurisdiction. At this level, it is a pretty compelling Buy, but you have to be willing to ride out the volatility from headlines.

This owns a portfolio of drugs in Europe. Because the European market is already very highly regulated, they don’t have the same issues with pricing that others have. Very stable margins. They just raised $25 million at $1.90 through sub receipts. When that closes, they can be swapped for shares in the stock will go back to $1.90. There is the short term upside, but longer-term he loves the growth profile.

A good little pharmaceutical company. Have done a lot of acquisitions. One concern is that over the last 4 years they keep growing, but we are not getting anything much happening on a per share basis. A lot of the CEO’s compensation is built around the size of the company, not on a per share basis, so if he doubles the size of the company he doubles his salary. Jason has 1 foot in the door and 1 foot out on this company.

Has been kind of beaten up over the last year as people were really waiting for them to make some sort of acquisition. Recently did 2 and raised some money. As the market becomes more comfortable with this, you’ll start to see the stock value a little better over time. Prefers Concordia Healthcare (CXR-T).

Another health care company that has been a wild, wild ride. Looked really interesting because they were in the early innings of an active growth by acquisition story. They buy high free cash flowing businesses that are going to be good down the road, in order to de-lever the balance sheet so that they can make more acquisitions. Thinks they are in the early stages of this, and the stock is worth a lot more than what it is trading at now. A good long term hold.

Technically it looks okay. It is in a growth channel. It has been building a base. He wants to see more volume before entering it.

Has owned this in the past. Probably one of the cheaper Canadian companies in its category. It shows up on his radar screen, but pretty much in the middle of the pack.

Has a much better balance sheet than Concordia Healthcare (CXR-T). Raised money at higher prices, so they have cash on the balance sheet, so you don’t worry about the debt level. Cash flows and multiples are also much lower than Concordia. He is waiting for them to redeploy that capital and thinks they are going to make an acquisition fairly soon. The stock should react positively.

(Market Call Minute.) He would consider it as a Hold. Prefers Concordia (CXR-T).

A company like VRX-T. They have no US exposure, which looks good. MRK-N would be his favourite in this space.

This is his preference in healthcare. On value versus growth, this is really a deep value kind of stock. Was trading at $3 not long ago, and thinks it could easily get back to that over the next year. Trading at about 4.5 or 5 times EBITDA.