Valeant Pharmaceuticals (VRX)

They are in recovery mode. It’s all about managing debt at this point and doing that properly. Going back to the glorious years of what it was before will never happen. The chart looks fairly positive, looks like we’re in a breakout now. From his perspective we are not in a seasonal period for health care and pharmaceuticals at all, particularly in the new year. Yes, we’ve had this bit of breakout and had a little bit of an uptick. But watch out if the overall healthcare doesn’t do well and if we don’t have any news from Valeant, we might see that pull back down. He would be cautious and would actually wait until later on. Seasonally we’re not there.

This is a huge problem child. Some of their drugs and compounds are worth a lot of money. He likes that sentiment has gotten so negative. Sometimes, when you have some enduring products, it is time to take a position as part of a diversified portfolio. Likes the new management. Their $30 million debt dwarfs the market cap which is why the earnings and sales look cheap. A high-risk situation.

Bill Ackman has just exited his position. He feels for people that had bought more on the way down. The company has been sitting with a B rating for quite a while, because the leverage of the balance sheet was used to buy companies that did not perform the way they were supposed to. In the last month or so, while the high-yield bonds have been rising in price, this stock has been going the other way. The bond market can usually signal something much stronger than what the equity market can understand. Debt to cash flow is huge. There are tens of billions of debt outstanding, so anything they do moving forward, they’ll have to continue to sell assets.

There is lots of value here, but until we get through the “woodshed process” by the Justice Department. They have a lot of goodwill on the books, but have good earnings which is a good thing. His model price is $57.93, a 190% upside. Let the process continue and let the write offs happen every quarter, and he’ll get a clearer picture of what is going on. It is too early yet.

Has been looking at things that are trading below their intrinsic value. Doesn’t own this, because it doesn’t have a dividend, but if he was thinking of opening up a new fund they gave him more degrees of freedom, he might think about looking at this. The company is going back to being a traditional biotech company and doing research and development. If they are successful in this 3-4 year journey and become a normal biotech company, there may be some value there. He doesn’t think it is going to zero.

This company is really, really good. It is a beautiful company, but with the craziness that is going on right now, is the risk worth it? No! He would stay far away from this.