Valeant Pharmaceuticals (VRX.TO)

Short. (A Pairs trade with a Long on Mylan (MYL-Q). In a Pair trade you really have conviction on both sides. While he likes Mylan as a Long position, his conviction actually lies with this company as a Short. They still have a lot of fundamental problems ahead of them.

Valeant (VRX-T) or Concordia (CXR-T)? Doesn’t own either although he did hold this for about 2 years. It feels that all the bad news that is possible is in this name. If he had to pick between the 2, he would go with this, but doesn’t want to get in yet.

The biggest issue is their growth by acquisition. They now have $30 billion in debt, their debt to cash flow is about 15X. In this environment he wouldn’t accept anything less than 2X debt to cash flow. It is going to take them more than a decade to pay off their debt given current circumstances. Because they are rated as a B high, their cost of borrowing is going to go higher at a faster rate. He wouldn’t want to own this. Would be more interested in having it as a Short, if anything.

(Market Call Minute.) Too much hair on this. Their brand is going to be tarnished which will take a long time to work back up.

Stock vs. Stock. VRX-T Vs. CXR-T. He bought both and then traded out of them. He would take CXR-T right now. There is concern about the ability of VRX-T to grow. Both have high debt. His concern in the healthcare sector is how drugs are sold for very different prices in different markets. You have to look at them on a cash flow basis because of the debt.

Compared to Concordia (CXR-T), they are both Buys, but if you can only buy one, he thinks there is more upside with Concordia. Thinks both are going to go up. (See Top Picks.)

An amazing story. It was a superstar company with the highest capitalization of any company. But at the same time, he questioned the valuation when it was so high. They have a distance to go before they restore trust. Not his kind of company at all. He prefers stocks that are under $10.

It is in a downward trend, underperforming the market; the momentum indicators are trending down, but it is trying to form a base. Wait until it starts to make a recovery. Stay away for now.

He is a long-term value investor, and this company doesn’t make it on any of those criteria. It is not a stock for long-term investors. Volatility is so high that it is not for your average investor.

Domiciled in Canada, but the vast majority of their sales are outside of Canada. Forward PE is trading at 8 times, but trailing more than 30 times. Hopefully they will be able to continue delivering on results and will grow into their multiple. One of his concerns is that they make a lot of acquisitions. Management has explained how they are very disciplined in doing that, and they seem to have a well thought out strategy. However, wonders about the skeletons in the closets that they don’t know about and only find out afterwards. Tends to stay away from companies that make lots of acquisitions.

He is watching it. It is very broken from a technical standpoint. It will be in the penalty box for a while. He thinks there is a pretty strong franchise. Once the dust settles and everyone has stopped selling it will be a case of what they can do with their numbers.

There is too much stuff going on. While it was on its way up, there was nothing to support its rich valuation. Now that it has come off, maybe it holds its valuation, but he would wait. When the US government decides that they want to take a piece of flesh out of you, you are not going to have a very good chance. Thinks you will be walking into a significant minefield.

Thinks this is going to be a pretty range bound stock for the next little while. It could be volatile. The relationship with Philidor is now declining. There is always a constant that once one thing is reported, who knows what else will show up. His bigger concern is the way the company has grown by acquisition and borrowing money. If you believe in the company and you held it for a while, he doesn’t think there is any harm in continuing to hold it. Expectations going forward will be lower.

Trimmed his position by a 3^rd on April 28 and trimmed again on August 25. Finally got stopped out and had no idea it would drop another 55%. (Stops do work.) The 1^st 2 positions were 150% gains and the last position was about 100% gain. There is a very fiery presidential election going on, so there is certain unjust characteristic to the whole Pharma space with pricing, etc. Leveraged growth through acquisition is another issue that is playing. The topic of drug pricing is going to be forefront in conversations for at least a couple of months. This might be dead money for a while.

Has never liked some of the issues that have swirled around the accounting. There is so much uncertainty out there. You have to be a little bit self-disciplined here.