CVS Health Corp

Regulations in the U.S. may affect distribution They recently bought health insurer Aetna. A cheap stock trading at 9x forward earnings. Not sure why the price has come off in the past month, maybe a rotation into momentum. The PBM business (https://en.wikipedia.org/wiki/Pharmacy_benefit_management) always has an overhang with the US government wanting to lower prices. These worries are absorbed into the CVS stock price. Also, CVS has had to pay more for PPE and labour wages, but these costs should abate in time. The current price reflects all these overhangs.

WBA He has owned CVS instead in the past. This and WBA have been hit hard in recent years from a lingering concern over pressure on drug prices in the U.S. So, both have expanded into drug distribution, not just drug retail. The multiple that the market will pay for either has compressed. So, he prefers other stocks in this space, like Loblaws (which owns Shoppers Drug Mart) Drug. Traditionally, drug retailing is a stable business, but in the U.S. the pricing issue remains an overhang.

Opportunities to lower cost structure of US healthcare are welcome. US healthcare is more expensive than elsewhere in the world. You're better to invest in a new concept that is under cover of an existing business, such as CVS. A pure play like TDOC is benefitting from Covid, and the stock price might wane when it's not such front page news.

He has chosen to exit their holding about a year ago, based on their UK alliance (due to Brexit). He participates in the space with CVS instead, who bought a pharmacy benefits company. CVS has more than 10,000 locations in the US. The company has become vertically integrated, which gives them a long runway. Their "Health Hub" offers medical practitioners to people who would not otherwise have access to one.

(A Top Pick Apr 22/19, Up 25%) Undervalued at 9x PE, still likes it. This is the future of US healthcare where costs are 50% more than other western countries. A way to reduce this cost is through CVS, such as using their health hub technology instead of walking into emergency. CVS has been smart developing this business. CVS also gets a cheaper line of drugs and they recently bought Aetna. Altogether, CVS is vertically integrated. A great company.

Healthcare is one of the best three sectors over the last 50 years. Eli Lily is a better choice. He's not in drugstores, because they are cyclical, such as 2008-9 when they got hit in a slow economy. Drugstores make their money buying impulse items in addition to their drugs, and people don't buy in tough times. He suggest Costco which fulfills prescriptions, but sells groceries. And Amazon is getting into this space.

There are two positives there for them. They are a drug distributor and they are now into healthcare insurance. With Sanders looking less likely to be the Democrat candidate, they should see some benefit. He is concerned there is a lot of competition out there for this space, like Costco, Walmart and others. Near term he could see a bottom coming in the share price and will be looking to pick away at it.