Valeant Pharmaceuticals (VRX.TO)

This has been a great performer. Not particularly expensive. As a value investor, he tends to try and find things that are a bit more beat up. This is a growth by acquisition model. Their organic growth is not particularly attractive, but assuming they can continue to execute on deals and buy companies, he can’t see any reason why the stock can’t keep going up. One risk is finding acquisitions at reasonable prices as the company gets bigger.

Along with every other “value” manager, he has been wrong on this in is much as this stock has been going up and up and up, and defying gravity. This is not a value stock. The leverage that they employ is considerable. This is stretched in terms of valuation.

Has taken on a lot of debt to fuel its acquisitions. This is run by business development people who are backed by really good operators, which will take it the next step higher. Track record is outstanding. There is no economic sensitivity to the consumption of pharmaceuticals, eye care products, etc. Trading at only 14X 2016 earnings, which is cheap for a high-quality large cap growth stock.

As a value investor there is no way he could touch this. It is a roll-up company, and grows by making acquisitions and then cuts out all kinds of costs. That works until it doesn’t work. He worries that as the company keeps getting bigger, it is harder and harder to do. It’s really a momentum stock now and not for him.

Demographics continue to be quite good for healthcare stocks in general, and this one continues to grow by acquisition. Have done over 100 acquisitions since they acquired Biovail. Thinks they will continue to do well. Ranks well in his model. His guess is that over the next 3 months, you will have a chance to Buy it a bit cheaper.

He thinks we are at a pivot point. He would not buy it here. He does not think we will make a new high.

This has done very well. It is growth by acquisition and is quite widely respected because of that. She is a value investor, so it is very difficult for her to predict what is going to happen. If you own, consider taking a portion that would cover your costs.

Short Valeant Pharmaceuticals. Have to do a lot of acquisitions in order to maintain growth. Thinks it has run out of momentum.

He thinks this is going to continue along the path they have. Obviously their deals have to get larger and larger as they go along. In his process, this company ranks very well, but from the technical side of things he is starting to see some of the healthcare names lose a little bit of the wind from their backs. If you own, you could probably Sell it here and buy it back cheaper. If you are a long-term investor, he would just Hold.

Has grown rapidly through acquisition. They know all the ways to reduce costs in large organizations. Debt levels are too high. No dividend.

These rollup strategies seem to be working exceptionally well. They keep on doing bigger and bigger acquisitions. They use the cash flow to pay off debt. He owns Concordia Healthcare (CXR-T) instead, which might be worth a look if you think this one has gone parabolic. He likes these spaces and doesn’t think Concordia is that overvalued.

His model price is coming back a little. It is currently at $246.53, a -13%. They are looking at another acquisition in Asia. It would be nice if there was a correction back to $240.

It is about 7-8% of the TSX composite. He doesn’t care if it is in the index. They are a roll up story and these tend to end in tears. He does not see the growth in the business, but the market does. Momentum is a wonderful thing if you are on the right side of it. This one will NEVER be held in the portfolio. It is noise.

Had been tempted to choose this is a Top Pick as a Short, except that it has some positive momentum now. This is what he sees as being wrong with this market. The strategy of acquisitions worked in the beginning, but thinks it has been pushed far too much now. Doesn’t think it is worth $100 billion, which is what its market cap is right now.

A little afraid when he sees an 82X PE multiple, and wonders about what they are going to do to justify it. The pharmaceutical area is reasonably tricky. Remember the bigger they get, the higher the earnings. The bigger the bite they have to take, the better they have to do in terms of absorbing a company to catch the earnings flow. It gets tougher and tougher the bigger you get. Has heard them talking about getting a company in Egypt, which gives him more pause to step back. This is a big multiple and the stock it is going to have to do amazing things to justify that. You can buy Apple (AAPL-Q) under 15X multiple, which is a growth stock.