Teva Pharmaceutical (TEVA)

This has been in the news, and is getting a great pop today. Most of the news for the pharmaceutical industry as a whole, has been tied to political expectations in the US, as to whether we might see price controls or long-term opportunities. With this company, it is really about the generic section, and that has been nothing short of skewered in many ways, in the media and the market recently. On all these companies, we need to wait and see how the administration views the sector, what they are talking about going forward, what changes might go to Obamacare. She is not ready to make a call either way.

(Market Call Minute.) There are rumours today of subpoenas and collusion against the US drug makers and that this is the biggest.

The healthcare industry in general is interesting. This company has been very aggressive in terms of sales. Healthcare is interesting because pessimism is so high with regards to government regulations. His major concern is that with a lot of these companies, where they are not dealing with crucial drugs that are life-threatening necessarily, there is a very cozy relationship between the drug companies, pharmacy benefits managers and the insurance companies. It has been unfortunate that the drug companies are being tarred with almost 90% of the bad publicity, when they are only 10% of the cost of the healthcare system. This is an area that is still dangerous from a political perspective, but this is a well-run company.

A lot of health care names are down. Their MS drug is causing them problems. Competitors are trying to avoid patents on this drug. Assume all these earnings and revenue goes away. If that happened you are still talking about an 8 times PE. He advises not to sell on panic. Shorts may take positions off after the election.

When something like this is in free fall, you need to pick a spot to exit. This one is like catching a falling knife. He doesn’t know where the bottom is.

This is getting washed out by the Clinton effect, and that shows up on the charts. This is in a distinct downward trend and underperforming the market. It just broke a key support level. RSI is negative.

This sells to 120 countries globally with a vast array of generic drugs. If Hillary is elected, there is going to be pressure on drug companies to reduce prices and the big winners are going to be generic companies, because they are already cheap. He likes this one, and it is really cheap. Thinks it could easily go up 50%. 3% dividend yield.

Trading at 9X forward earnings. Acquired Allergan’s (AGN-N) generic business, which was a good deal for Allergan, which got rid of a business that was non-core. It gave Teva massive scale, which is the #1 in generics, and they can take out a lot of costs. The issue for the generics is the headwinds of pricing, especially in the US. This is why the sector is down and hasn’t been able to move forward. Both US presidential nominees have bashed the pharmaceutical industry, especially for a fair number of the generics. Once we are over that and things calm down, this should probably start to re-rate itself and the whole sector will re-rate higher. A great company to hold.

One of the largest generic drug makers. Less risk than some of the other drug makers, as it doesn’t own as many branded blockbuster drugs. They are in the midst of acquiring the generic business from Allergan (AGN-N). The company is confident their earnings will grow significantly which will diversify their portfolio. Very cheap on an earnings metric. As we age, people are going to be using more drugs, and generic drugs are probably going to be prescribed more, given the lower prices.

They are in the process of buying Allergan’s (AGN-N) generics business. Generics aren’t great looking forward, at least in the very short term, and he thinks this is priced into the valuation. There are a lot of synergies on drug duplication that can come through.

The stock price is going down, not just because of the recent takeover, but because generic brands are under pressure on pricing, and there are not a lot of new generic products coming out. This company is fine. As a generic, they will always, over time, continue to put out products. He is not a big fan of pharmaceuticals that are in a consolidation phase right now. He would stay away from this, but if you own it continue to hold.

Pharmaceutical seasonality is normally around mid-April through until mid-September. However, the ASCO conference happens in the 1^st week of June every year. That is when the news on the latest cancer drugs come out. This stock is not involved in cancer drugs, and he doesn’t know the seasonality of it. Technically, the chart is showing lower highs and lower lows. You would probably be better to go into another pharmaceutical stock.

This has a wonder drug for MS, which represents a lot of their profits. A lot of people were worried that that would go away and they would face a lot of generic competition, but that wasn’t the case. Making a big acquisition of Allergan (AGN-N), and the stock sold off a little bit because they delayed the acquisition for a month. Trading at a depressed valuation at 10X earnings. Feels generics are a safer way to play the pharmaceutical industry.

(A Top Pick Dec 1/14. Up 12.46%.) MS Drug is their big branded drug, and people were worried about Copaxone and that a generic was going to take over. These guys were smart enough to switch to a new formulation, which has done wonders for their earnings. The knock on the company was that there was no growth, so they went out and acquired the generics business of Allergan. Also, made a few deals in Mexico. This company gives you a full suite of generic drugs.

The peers are rolling over so you have to be careful. The positive thing is that we have a long base since ’09 with higher highs and higher lows. He would be very careful with this sector.