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A globally diversified REIT with exposure in Canada, Brazil, Germany, Austria and Asia. Rather than being in healthcare, they are more of a rent collector. In Canada, in particular, they run medical office buildings, which is a more defensive part of the market. Yield of about 8%. Although it has some positive attributes, the balance sheet is stretched, and a lot of their debts are in convertible bonds.
The sector is trading at 14-14.5 times, while this company is trading at about half that multiple. From that perspective, it is screaming value. However, this was a 2-trick pony with hepatitis C and HIV. The hepatitis C has been slowly decreasing and HIV sales have been increasing, but not enough to offset the decline. Generating tremendous free cash flow, and he thinks the market has taken a bit of a wait and see attitude, to see how management is going to deploy this. The stock has a 2.5% yield, and he would like to see them bump the dividend. They would still have more room in terms of capital to put the money to work, to see where the next leg of growth is going to come from.
Now nearing the upper end of the valuation range. Looking at the Canadian seniors housing market, you have Chartwell (CSH.UN-T), the largest in the space, and this is in the next tier down. The AFFO multiples are very close, and at the high end of the range. They’ve started to expand into home care which is probably why they have done so well. This is an area where there has been pretty robust margins and lots of growth, with government subsidy. There are better areas where you can get higher yield, and even better valuations with growth, but overall it is a good company to own. Dividend yield of 4.6%.
Has a very small position, and it ranks high on his list. It has done very well in diabetes insulin. However, that is a part of the market where there is starting to be some downward price pressure as more competition has come in. There hasn’t been enough R&D to find out where the next leg of growth is going to be. You would think emerging markets would be a dominant area for them, but they don’t seem to be moving in that direction. The stock is not cheap and gives you about a 2.5% yield. He would like to see an activist investor get involved.
He thinks the drivers behind the healthcare sector are as powerful today as they were 6 months ago. However, the environment has been changing, where you need to be more of an active manager, understanding which asset mix makes sense. This is a passive ETF, so you are subject to the whims of the largest names. You should have exposure to the sector, but try to identify something that is more actively managed.
A company with a very deep pipeline of drugs, one of the major ones being the cancer drug Opdivo, specifically in the immuno oncology area, which the market has written off for now. Merck (MRK-N) has clearly beaten them to the punch on lung cancer with Keytruda, but there is still a vast market, awaiting on the Opdivo end, and he thinks the market is not giving it its due value. Also, this is a potential take out candidate for something like Johnson & Johnson (JNJ-N) or Pfizer (PFE-N). Dividend yield of 3.16%. (Analysts’ price target is $59.12.)
Management has shown to be very effective in growing through development and acquisition. They are focused in various areas but the home base is in Ontario where there is a waiting list of about 25,000 people for long-term care beds. Dividend yield of 5.27%. (Analysts’ price target is $13.35.)
One of the generic companies that focuses on the top of the market. They tend to have the newer generics. The bad news is that they are selling in the US to 3 joint ventures. The wholesalers and retailers got together to form joint ventures which controls 80% of generics, so they get much lower selling prices. The trick is to be very efficient in manufacturing, to be able to meet the bids as well as being early in launching drugs that have just gone off patent. A tougher game to play than it used to be. Operationally, the company historically has been very good. It has sold off, and is reasonably attractive.
They’ve had great success in their drug for lung cancer. Lung cancer is about a 5th of the demand for immuno ecology agents, but the balance of the market is 4X larger and consists of many indications. If you look at who is in the lead, it is more often Bristol-Myers (BMY-N) than this company. Merck had incorrectly been left behind on valuation, but that has now been lifted. Capital markets are looking at who wins and who loses in immunology as an absolute, but that is not the case, it is going to be a balance between the 2. This is a fine company and the valuation is reasonable, but he would rather be with Bristol-Myers. (See Top Picks.)
