Express Scripts Inc (ESRX-Q)

He is not sure about the seasonality of this, but technically, it has been in a longer-term downward trend, and just recently broke the downward trend. It's now trending higher and is outperforming the market. It’s broken above 2 resistance points. He would stick with this for a trade coming into springtime.

There are rumours that Amazon (AMZN-Q) is going into the drug area. For the American people, that would be a wonderful thing, because it would provide transparency and price for drugs, which they don’t have. Chart shows this has been in a downward channel since the middle of 2016. Fundamentally, it is not looking strong. If he owned, he would set a Stop on it, looking to get out.

He stayed away from the pharmacy benefits management space. Drug prices are extremely elevated in the US compared to Europe. Selling prices can fall a lot. Most popular drugs are 20-30% cheaper in Europe than in the US.

(A Top Pick Nov 23/15. Down 21.3%.) The fundamentals are fine. They are having record earnings this year and are guiding for record earnings next year. Unfortunately, they announced that one of their biggest customers, Anthem, is shopping around its contract, which is going to hurt earnings. Also, they got a couple of subpoenas. The sentiment for healthcare is horrible.

(Market Call Minute.) Favourite pharmaceutical company? This is not really a pharmaceutical company, but an intermediary between the pharmaceutical companies and the end users. He feels that is a safer place to be.

This space has been tough right now. They are having a little bit of client attrition, with contracts rolling over to other providers. Also, this is a sector that has headwinds. There is a fair bit of uncertainty in the story.

He is buying a lot of this. The only independent pharmaceutical benefits company left standing. The main reason it is down is that one of its customers, Anthem (ANTM-N), (30% of its revenues), is suing because they want a better deal and some upfront payment. People are worried that in 2019, when their deal comes to an end, that Anthem won’t re-sign with them. Shares were almost $90 a few months ago, and are now at $67, so he thinks the problem is already priced into the stock. Meanwhile this is a big generator of free cash flow, and using all its free cash flow to buy back stock. Retiring its shares at a dramatic level.

(A Top Pick March 24/15. Down 15.31%.) He still likes this. Prescription Management Services is a great industry. At the start of the year, the entire sector just fell off a cliff. People had decided that healthcare stocks were so 2015, and didn’t want to own them anymore. He thinks that was overdone. He is still Buying.

This is a toll road. They have 90 million lives that they cover in the US. When people join drug plans they are covered under drugs, and this company, which has huge buying power keeps the drug prices low. A great retention rate of 98%. The only standalone and at some point he can see it getting acquired or merge with Walgreens. Generating a lot of free cash. Has been buying back a significant amount of shares over time.

A pharmacy benefits manager (PBM) which basically creates a large buying pool on behalf of their holders. Thinks this whole group is interesting, but he has chosen to play it by owning CVS Health (CVS-N), which owns a company called CareMark, a competitor of this company. He would prefer CVS Health instead.

The only pure play pharmaceutical manager that is publicly traded. This is an industry that is an oligopoly and has pricing power.

It’s like a buyer’s group. They are a toll road for drugs, getting profit off a spread between the usual price and a lower one they negotiate based on the bulk they are dealing with. The payout ratio is small so it can go up a lot. You don’t care who has the best drug.

When you see a severe reaction to earnings, you have to dig down to see what caused this. Sometimes it is something not long lasting. The whole pharmacy benefits space is a good long-term play. He owns and would prefer CVS Caremark (CVS-N), which is a direct competitor. This gives you a pharmacy benefit play but it also gives you a drugstore play, which gives you a natural hedge.