Walgreen Boots Alliance (WBA)

(Market Call Minute.) Prefers Amerisourcebergen (ABC-N) because of their distribution of drugs, as opposed to the bricks and mortar retail outlets of this company.

There has been a lot of work done on the merger with Rite Aid (RAD-N). Should it go through, it becomes a management and operation that has a lot of levers. He thinks we have seen the secular low in rates and that is going to be a headwind for them. Along with the synergies that they will get out of the deal, there will be execution risks. Unfortunately, on the drug distribution and pricing side, there is little headwind there as well.

He thinks there is a future to it and holds it. There are concerns about how Obamacare will transform under Republicans. Two thirds of revenue is coming from pharmacy and one third from front store. He also has CVS-N. Be patient with it.

She would prefer CVS (CVS-N), especially given the pullback they’ve had. CVS is trading at a more attractive valuation, and feels they can turn themselves around and get growing again in 2018.

(Top Pick Sep 7/16, Up 3.27%) Not a lot has changed. It is a steady business that is doing a lot of things right. They turned over 40% of their supervisors in North American stores. He thinks it will result in sustainable margins.

[See Past Picks] They have a lot of partnership agreements that will kick in shortly. They are renovating an enormous number of stores. They are doing a better job of understanding SKU by SKU profitability. They are driving traffic. They are doing all of this to offset margin compression.

They are in the midst of a proposed purchase of Rite Aid, which will give them a lot of benefits, both from a cost standpoint but also from a geographic standpoint. Rite Aid is quite strong in the Northeast and Midwest, and that scenario that could use some bolstering in their portfolio. If they take it on, and move some of the stores up to the quality of Walgreen, their revenue per square foot will improve and give a boost to the opportunities.

Overall this is a decent company. For pharmacy companies in general, will some of the acquisition mode be curtailed under a Trump administration? A bit of a risk for this name. If you want to stay in this area, he would be inclined to move to CVS (CVS-N). Overall though this is a good name.

(A Top Pick Nov 3/15. Down 2.69%.) This has been a little disappointing. The negative sentiment around healthcare has certainly affected the multiple. They’ve delivered relatively good earnings. The real opportunity going forward, is their ability to extract synergies from their last acquisition. He still likes this.

Within the group this is the one to own. In the short run, it probably doesn’t have the same leverage as some of the other sectors. It has a 1.8% dividend that should continue to grow. If the stock can trade north of about $86, technically it would be more attractive, but it is not at the epicenter of the buying right now. This is a type of company that would more likely be bought in a more defensive environment.

Any change in healthcare will only benefit them. This and CVS-N are two great companies.

(A Top Pick Oct 29/15. Up 1.55%.) The stock really hasn’t made much of a move, so he exited the name for technical reasons.

Has had a difficult time with client’s portfolios because he has been moving out of consumer staples stocks which have done poorly with rising rates since July. That is uncomfortable, because this is the most stable sector, and he is trying to find names within that sector that he feels are going to grow and they are hard to find. Consumer staple stocks sales do not go down during recessions, which would be the same case with this company. This has a free cash flow yield of over 7%. The company thinks they can grow their top line revenues by 10% per year over the next 3 years. Dividend yield of 1.83%. (Analysts’ price target is $92.80.)

Today, we are seeing a sensitivity to the healthcare sector as to what the future can be. The stock has gone sideways for quite a long time. A pretty high-quality company, but you do have an increasing piece of these companies that is linked to pharmaceuticals, and what that area is going to look like in the next couple of years. This is a fully valued company. It’s a good business with good prospects, but not necessarily a great value today.

He has strong feelings for this space. Prescriptions are rising as the population ages. Healthcare might be affected by a Clinton presidency. Some of that is built into the price of the stock. He does not think Democrats will take back the house. Otherwise you might see a bit of a rebound.