Walgreen Boots Alliance (WBA)

CEO Stefano Pessina is a visionary, who is a key part of the transformation in US healthcare. It is all about taking costs out of the system, becoming more efficient, and recognizing that you can’t just rely on higher prices. They are taking their store network, driving costs out, and basically reinvesting that into a better experience. Dividend yield of 1.77%.

This has had fits and starts, and over time it has done well. This is a great space in the healthcare area. With the demographic changes and the affordable care act, there is a lot of wind at your back. A great growing business and not terribly expensive, trading at 19-20 times earnings, and is growing fairly well.

Likes the stock at this level. Relative value compared to the S&P 500 usually trades at a premium, and that has since come in quite substantially. This is a great entry point. If you normalize for the synergies that they can get from the Rite Aid acquisition and the Alliance Boots acquisition, you are looking a pro forma earnings upwards of $7 per share they could realize a couple of years out. This is a stock that typically traded in the range of 15-20X earnings, so there is a lot of upside potential. You could buy Rite Aid (RAD-N), which would be a lower risk way to get a little bit of upside into your broader portfolio.

This has given him a Sell signal and won’t give him a Buy until about $69-$71.

(Top Pick Jan 15/15, Up 7.47%) They have been quite acquisitive. They have done well integrating the company and it has been quite accretive. This is a story about the affordable care act. It is about the aging North American. The company is well managed. They have catalysts. They will grow and stock prices will follow.

Prefers Amerisourcebergen (ABC-N) which has a joint venture partnership with Walgreen. Instead of having the brick-and-mortar, he has the distributor. Has no problem with Walgreens as an entity. People need to depend on their pharmacist, so this company, having thousands of stores in the US, makes it a good entry level for anybody who wants to have a consumer or quasi-health care stock, without the litigation risks behind it.

A basic and very important business. As the global population ages, the pharmacy is going to become a more important centre for health. People over the age of 65 are generally on one or more prescriptions for chronic conditions. Governments and insurance companies are now using the pharmacies to deliver flu vaccines and to write prescriptions.

This is doing a good job. Overall he likes it. Not his favourite name though. Going to a smaller store format and doing more to push scripts. They have a large share of the market.

Performance has been quite negative compared to the market. There has been political discussion of drug company profits and it has been negative for the healthcare market. This is the ebb and flow of the market. Try to avoid making short term decisions on a long term investment. It has demographics working for it. The affordable care act gives them more access to prescriptions. Invest for the long term and you will be rewarded.

Likes the drug/retail space in general. Prefers CVS Health (CVS-N) which has the diversity of the PBM business as well. There is nothing wrong with this company. They have put a bid out for Rite Aid (RAD-N) which will consolidate the space. (See Top Picks.)

CVS Health (CVS-N) or Walgreen Boots Alliance (WBA-Q)? He owns both and has done very well with them. They have both been quite dynamic in their operations over the last while. Their minority interest in Allied Boots has been quite accretive for them. Have a very nice arrangement with Amerisourcebergen (ABC-N) in terms of generic drug supplies. CVS on a valuation basis, is a little bit more attractive, but it is really a toss-up.

With the acquisition of Rite Aid (RAD-N), the balance sheet does become a little more leveraged, which is why he thinks the stock has sold off. However, if you have a longer-term time horizon, this gives you a duopoly of this company and CVS (CVS-N) in North America now. They will probably have to divest about 30%-40% of the Rite Aid stores. There is also a little bit of exposure to European growth as well. Dividend yield of 1.63%.

You have to like the position and the way the Rite Aid deal will work out for them ultimately in terms of market dominance. The stock market reaction is really the worry about the regulators and whether that is too much industry concentration. He wouldn’t be putting full money into this at this time.

He thinks they are good at taking costs out. They are seeing another opportunity to make an acquisition. They buy mature businesses and then cut costs out of it. He likes the retail sector. He thinks they will execute as they have in the past.

Dropped $10 yesterday based on the Rite Aid purchase, and he thinks this was the right purchase. Lots of synergies when it comes to cost savings, purchasing scale and elimination of overhead costs. In the long term, with aging demographics and the positive effects of the Affordable Care Act, it will help names like this. Trading at 19X forward earnings with a 15% long-term growth rate. Pretty good PEG ratio at 1.2%. Yield of 1.72%.