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BUY
Likes it very much. Thought bought Covidien, a medical device maker, a few years back. They're executing very well, such as their diabetes franchise which boosted their guidance recently to 5.5% growth in 2019. Valuation good at 17.5x vs. peers. Many of their products are essential services which is anothe tailwind.
biotechnology
pharmaceutical
WAIT
Maybe the CVS acqusition of Aetna is synergistic by putting Aetna facilities besides CVS locations, but will this drive volume within the pharamcy? He's not sure. Trades at 10x earnings. With this purchase, their debt is higher. Wait a couple of quarters to see if the acqusition pans out.
specialty stores
COMMENT
He exited. They distribute drugs, a price x volume business, with retail pharmacy (Rexall) outlets in Canada as well as another chain in Germany. The stock is cheap, but the overall business is in the process of changing as the discussion in the States shifts from high drug prices to rebates. That's why he's on the sidelines of the drug distributors. Also, branded drug prices are rising 6-8%, but generics are falling 8-10% annually--that's begative. He's on the sidelines of this sector. Keep an eye on generic pricing.
wholesale distributors
COMMENT
Very frustrating. He likes their long-life assets and consumer health business (consistent cash flows). They have some pipeline. Acqusitions surprised him--in 2016, GSK swapped their oncology assets for vaccine assets of Novartis. Then, they spun out their consumer businesses into a joint venture. It was bizarre they purchased oncology; is it accretive? He thinks they bought it to see where else they can extract value. They paid a hefty premium to buy Tessaro. GSK pays a large dividend and has a strong balance sheet, so good income.
biotechnology
pharmaceutical
PAST TOP PICK
(A Top Pick Jul 05/18, Up 29%) An investor should diversify in the health sector, and MRK is a diversified health company. MRK has done very well in their oncology side. They're becoming dominant in immunotherapies. MRK gets their science and data right, unlike their peers.
biotechnology
pharmaceutical
COMMENT
As tech pulls back, will we see an upswing in health? Tech could continue to post robust returns, depsite the fall rout. He likes tech a lot. But the tech sector still trades at a discount to the wider market. Pharma is considered a "superior good" and has outpaced the wider market with great topline growth. Hold 10-15% health, especially large-cap biotech. Drug spending is 10% of expenditures for Americans, but also a political lightning rod. He likes the move towards more transparency in drug pricing.
COMMENT
They've been hitting it out of the park and continues to see great topline growth. He sold it because Eli Lilly spun out their business into Elanco, the #2 in animal health. There's a premium valuation on ZTS, because there's little else to get exposure to animal health. At 27x earnings, this will get hit more in a pullback.
Consumer Products
