Today, Jerome Hass and Paul MacDonald commented about whether CELG-Q, ANTM-N, MRK-N, JNJ-N, GSK-N, ABBV-N, BMY-N, SYK-N, MDT-N, HHL-T, UNH-N, MRK-N, AMGN-Q, ABT-N, PFE-N, GILD-Q, MCK-N, TEVA-N, CXR-T, CGX-T, CNK-N, HCG-T, TOY-T, CWB-T, NYX-X, BIOA-N, BAC-N, FLT-X, RUS-T, RME-T, ECI-T, CRH-T, SCL-T, MYL-Q, CXI-T, CJT-T, CBL-T, GMP-T, EFL-T are stocks to buy or sell.
Has a long term Short on this. Looking back to the last downturn in 2008-2009, it took 17 quarters for them to get back to pre-recession provisioning levels. The current downturn in Alberta has been a lot longer and more protracted, so thinks the time horizon for provisions will probably be even longer than 17 quarters and doesn’t think the street is factoring that in.
*Short* A very crowded short, and he generally doesn’t like to participate in crowded trades, but makes an exception in this case. There are a lot of Shorts on this, because the US hedge funds use it as a proxy for the Canadian housing market. His view is actually quite neutral on the Canadian housing market. There is a lot of runoff in their portfolio, so just to stand still they have to get at least 14% growth in terms of their number of mortgages. This is because banks have gotten smarter at catering to new immigrants to Canada. Dividend yield of 3.91%. (Analysts’ price target is $29.73.)
Market. Looking back over the past 15 years or so, last year was the 2nd year since 2002 that we have had negative returns in healthcare. The other was in 2008, but it was the best performing sector. There is a lot of noise around the politics in the US about the affordable care act. His view is that the election was a critical pivot point. Given where valuations are right now, if you have a longer-term perspective, the fundamentals for the sector are intact over the medium term. The healthcare sector currently is very inexpensive. The forward multiple on the S&P Healthcare is 2.5 multiples below the market. We haven’t seen that in the past 15 years. That means that the price you are paying for the earnings for the companies is significantly below where it has been, compared to the market over the past 15 years.
One of the top 3 distributors of drugs in the US. A very high volume, low margin business. They indicated they were transitioning into the retail side by acquiring 2200 retail pharmacies in Europe as well as IDA in Canada. They are exposed to the generic drug pricing, so he opted to stand on the sidelines.
This is the company that found the cure for hepatitis C. It has been a very challenging stock to own, and very much a value trap for the past couple of years. They are seeing price pressures and competition from many competitors over the next year on hepatitis C. They have cut their guidance sufficiently that they can meet it. A great balance sheet and are buying back tons of stock. An OK dividend. Thinks they have some hidden assets in their Nash portfolio and expects to see some results towards the end of the year. He uses covered call strategies to help generate some extra income.
Likes the valuation. Trading at around 13X next year’s earnings. This has a history from 2010 to 2015, subject to a big patent cliff, where they had significant declines in revenues. They’ve filled out their pipeline. Has 140 drugs that are over $100 million in revenues. 8 are blockbusters with over $1 billion in revenues. Likes the valuation and the yield.
This is sitting at around 17.5X forward earnings. The St. Jude acquisition was a big one for them. It expanded their balance sheet. They still have the Alere acquisition overhang. Have some things to chew through this year in order to get the multiple expansion up to something like 21X, where its direct competitors would trade at. If a longer-term holder, you do have some upside on this.