Valeant Pharmaceuticals (VRX.TO)

An un-investable stock for him. There are so many different moving parts. A new CEO has come in within the last 5 months, and it has a legacy of issues going back for some time. Reported disappointing earnings, and guidance was a great, but the message they got across was that they were not going bankrupt.

There is no seasonality for this. The chart shows it is in a distinct downward trend, and hasn’t even shown indications of reaching a low yet. It is underperforming the markets and the momentum indicators are down. Trading below its 20 day moving average. There is no real reason to own this stock.

A lot of this company was wrapped up in their growth by acquisition model, and then some very prominent shareholders got involved, and this took on a life of its own. He has avoided this stock, largely because of a lack of tangible dividends.

Has some new products, but the challenge is that the earnings have declined significantly, being down 30% year-over-year in the most recent quarter. For 2016, earnings are expected to decline by 24%. Appears to be trading at less than 3X PE next year.

(Market Call Minute.)

It is not showing any signs of breaking out of its base. It is too early to comment from a fundamental point of view.

Valuation on this is really tough. It has a lot of debt. It appears to be willing new management to maybe do some asset sales to pay debt down. That has stabilized the stock in the $30 range. If he had made some money on this, he would have been a seller and driven on to something else.

(Market Call Minute.) There is very little visibility as to what the earnings profile is going to be.

(A Top Pick July 8/15. Up 90.48%.) *A SHORT. He covered this in March/16.

(Market Call Minute.) This is a “close your eyes” and Buy, but limit it to 2%.

Wouldn’t touch this with a 10-foot pole. He was the biggest cheerleader on this company from $50 US all the way up to over $300 Canadian. Had thought Mike Pearson was one of a handful of people who could actually do a rollup correctly. This is a failed rollup, and like all failed rollups, you get a turnaround guy in, who will start selling the crown jewels. There is $30 billion worth of debt, and more importantly there is $18.5 billion of goodwill on the books, which all has to be written off. Predicts this goes considerably lower.

Has never owned this because he could never get his head around their negative ROE. There is a lot of noise around pricing and investigations. They have a huge amount of debt and $31 billion in overhang. Also, there are some regulatory issues in the US. On most value metrics, this is very inexpensive, but you have to realize what you are buying. This is a company that has lost its reputation with its clients, physicians and payers, and they need to rebrand that. If you have risk tolerance in high risk, there is opportunity here.

A company he wouldn’t own. The new CEO is not a miracle worker. A growth by acquisition story which was entirely fuelled by debt. It was predicated on price increases and being able to borrow and grow the company. There will be many more opportunities to get this company without having to jump in now. (See Top Picks.)

There are a lot of good core businesses in here, and they have the ability to generate some free cash flow to start to pay down the debt. Has decent cash generation. Thinks they are getting some of the worst of the lawsuits behind them. The core businesses look fine. They have some good consumer products generation, and are starting to generate a lot of free cash flow.

The company is going through a major transition from growth by acquisition to try to pursue organic growth. A difficult industry environment at the moment. With their change in strategy, it may be too soon to step in. Has a lot of debt, and may have to sell some assets.