Pfizer Inc (PFE)

Has been executing very, very well. They have a really good pipeline. They all had a patent cliff, but PFE had a pipeline behind it from Wyeth whom they acquired.

(Top Pick Oct 5/12, Up 18.02%) Is at an entry point today. Model price $34.35, 17% upside. These assets are cheap and should do well for the next year or more.

Thinks this one is worth $34-$35 over the longer-term. Healthcare legislation in the US doesn’t actually affect this company. About 60% of its revenues are derived from overseas. Healthcare legislation will basically add plans for them. Distribution of drugs domestically and overseas continues to grow for them. Very solid balance sheet and relatively low payout ratios. Good dividend support.

(A Top Pick September 14/12. Up 24.2%.) Good story long-term.

One of the problems he has with the pharmaceutical industry is that it went out to people with fantastic drugs worth billions and billions of dollars. Because of this, people thought they were a growth stock and gave them a multiple on the growth side. This one trades at around 12.8X earnings with a free cash flow yield of around 8% or so it is not expensive. However, drugs are coming off patent. He prefers a company like Johnson & Johnson (JNJ-N) which is a 3^rd Pharma, a 3^rd medical devices and a 3^rd consumer products.

Has done well on the back of cost cutting. Have not grown revenue much. Drugs are going off patent. A drug like Lipitor or Viagra are tough to overcome. Drug companies are slow to come out with replacement drugs. He would prefer Merck (MRK-N).

(A Top Pick July 31/12. Up 27.42%.) His model price is $33.86 so it still has a 15% upside. 3.28% yield.

Really into capital allocation. Spinning off their animal division, a pharmaceutical division and then buying back a ton of shares. Doesn’t love this one any more and wouldn’t be buying. Would suggest you look at Teva Pharmaceuticals (TEVA-N) where in 3 to 5 years, you’ll be happy. Teva is trading at less than 8X earnings.

(Top Pick Jul 26/12, Up 30.33%) End of July, early August starts the period of seasonal strength. The ending point is December.

(Top Pick Jul 31/12, Up 23.84%) $33.22, 15.3% upside. 3.3% dividend. Nice upside in terms of model price and you can sleep at night with the balance sheet. 15-30% model upside is normal now.

His top pick in healthcare stocks. Really likes the large-cap pharmaceutical space. These are very low growth vehicles, 1%-3%. Thinks the stock can still continue to work. They are on the cusp of a new drug and this is what is really going to drive this stock. Relatively low payout ratio and a good dividend yield and they are no longer relying on promotions, they are actually doing some real R&D. Pipeline is fairly robust and it is increasingly going to move outside of North America. Trading at about 12X forward earnings, but the market is trading at 15X.

(Top Pick July 31’12, Up 19.57%)

Pharmaceuticals have all suffered from pretty much the same problem, i.e., the billions of dollars they spend developing drugs which only last so long before going to generic. Stock has done well, basically because of cost-cutting and the yield play. Drug companies are starting to make headway and are starting to come out with compounds and drugs that are lapsing the losses. Would prefer something like Merck (MRK-N) which has a better pipeline and a better opportunity for growth.

(A Top Pick July 26/12. Up 23.85%.) Healthcare got zapped with all the other defensive names and he sold his holdings. He’d go back in on this at around $23-$25.

Undervalued for a couple of years but in the past year, particularly when the defensive stocks moved, it has had a 40% moved to the upside. Have a great distribution network.