Valeant Pharmaceuticals (VRX.TO)

It is a roll-up story. He has not seen numbers this good since the ‘80s in a roll-up. All the news has come out and the stock came crashing down. It is trying to stabilize at EBV +5. It is not a mortal hit. The strategy will still work if it stays above EBV +5. If it goes below then they need a different strategy. It is probably dead money for a quarter or two.

From the start this has been an aggressive growth model, mainly through acquisitions and financing through debt to maximize leverage. If that was your thing, you should have realized there were risks. He is a skeptic. Take a look at the motivation of the people that wrote the negative report. They are Short sellers, so that immediately raises red flags. On the other hand, Scotia Capital has seen the court records and have come away quite positive. The jury is out and each person has to decide on their own.

We are in a period where there is going to be tax loss selling all the way to December. A lot of people have been shocked by the vulnerability of the stocks. A stock trading at high earnings multiples that has grown in a matter of the few years. Questions how this company can continue to operate with takeovers to accrete earnings when it is that size. The larger it gets, the larger the acquisitions have to be. Doesn’t think the formula was working with the size of the capitalization of the Company. It is still a 50X multiple where it is. Thinks the stock is vulnerable.

This got way, way over what he considers their FMV. It was essentially running on momentum. When momentum runs out, the stock just plummets. You have to wait for the bad news to wash through. The bad news is that the US Congress is really ticked off at these drug companies for buying drugs and then ramping prices up. Let it find its footing in order to start to get out of this morass.

Just reported a great quarter. Most people liked the quarter, but at the same time it seems that management has been knocked off their podium a bit and are starting to second-guess things. A company with a very high ROE that is trading on 2016 earnings. The earnings and cash flow power is so strong that he just doesn’t think it is going to sit down here at this price. There are not that many $40-$50 billion companies trading at 8X earnings that are growing at the rate these guys are growing at. This is going to be worth a lot more in 12 months than what it is today.

He cannot make heads or tails of this company. They took advantage of an arbitraged opportunity and then put their prices up. If capitol hill comes calling they are in trouble.

We are in a period of seasonal strength for some of these stocks. It normally runs through November and December. It all comes down the scrutiny over the pricing practices of pharmaceutical companies. We are below the 200 now. We are probably due for a snap back rally. There is not a long term reason to be in this sector.

There is talk of the US government going after drug companies that they feel are gouging. The stocks went down. He feels there is more downward movement to go. He looks at last year’s lows as a guide to how low it could go.

It is a huge growth by acquisition story. It is a mess. Things can start to get bad fast and fall for a long time with these. Politicians are going to jump on the band wagon. This is the start of something bad.

There has been tones of technical damage. It does not look good. It is an ugly chart.

Healthcare has been very. Then it broke down very recently and he got stopped out. That is in process. The leaders are getting hurt as they usually are before a correction. They may be the first to take over when things turn around.

It scares him because it is so unanalyzable. There are so many moving parts and so much debt. He won’t buy what he can’t understand.

The stock has done fantastic. Not the cheapest. He normally tries to buy companies that are growing faster than the market and trading cheaper than the market. The exception is when he can find a company that can do accretive transactions. Ones that the market and analysts haven’t factored in at any given point in time. He expects this company to continue doing that into the future. It has tons of growth ahead of it. Likes it a lot.

This is overvalued. Everyone in the US is in love with it. His model price is $256.80. If it pulls back to $263, that would be a great buy in your portfolio.

They buy their R&D. It is difficult to say what the company will look like in a couple of years. It is hard for her to model the visibility of the company a few years out. It is not a kind of company she would buy for clients.