PBMs: Express Scripts and CVS’ Looming Victory?
February 23, 2017
Image Source: Victor We’re expecting a big win at CVS in coming years, and it may come at the expense of Express Scripts. By Alexander J. Poulos With the recent addition of CVS Health (CVS) to the newsletter portfolios, we believe the sell off in the Pharmaceutical Benefit Managers (PBM) industry is overdone. We are intrigued by the free cash flow generated from a highly-predictable business model, and that the PBM’s negotiate contracts in advance, locking in a customer for an extended period, only adds to the attractiveness of their operations. Another PBM, but a pure play, is Express Scripts (ESRX). Let’s discuss the unique characteristics of Express Scripts along with notable risks, which prevented us from adding the name
3 Critical Drug Approvals For Your Radar
February 23, 2017
What can investors expect when it comes to imminent drug approvals? Let’s cover three important ones. By Alexander J. Poulos The drug discovery process is a tedious multi-step process that is fraught with peril. The design of the clinical trials remains very costly with little in the way of assured success. Companies that can successfully shepherd through a compound are often rewarded a lucrative patent that allows for monopoly-like margins for a limited time. We monitor the drug-discovery process closely, with a particular emphasis on PDUFA (Prescription Drug User Fee Act) dates. A PDUFA date is when the FDA needs to rule whether or not a new drug application will be approved and become available to the market. A delay
Johnson & Johnson’s Oncology Division A Force to Be Reckoned With
February 18, 2017
Healthcare and consumer staples giant Johnson & Johnson is a core holding in both newsletter portfolios. Let’s take a deep dive into one of its key sources of growth, its ‘Pharmaceutical’ segment. By Alexander J. Poulos and Kris Rosemann Consistency of returns is one of the hardest goals to achieve in the investment world. Often, one of the key components when selecting equities to build a long-term portfolio is their respective durability through the ups and downs of the economic cycle (in portfolio theory their collective performance would matter). A company that is able to generate resilient returns under various conditions often has a business model with defensive characteristics and an attractive Economic Castle. Johnson & Johnson (JNJ), the consumer
Cisco Accelerating Recurring Revenue Base, Raises Dividend Double Digits
February 17, 2017
Image Source: Brandon Leon.
Newsletter portfolio holding Cisco continues to transition its business to a software and subscription-based model. Let’s take a look its progress as of its second quarter of fiscal 2017.
Notice: Website Under Construction
February 15, 2017
Image Source: TriangleREVA Notice: Our hosting provider is currently updating our website to apply a new SSL certificate to comply with a recent Google update. You may receive a message that “Your connection is not private.” in the meantime. The website will soon be located using https://. We apologize for any inconvenience.
Gilead Sciences Continues Its Meltdown
February 15, 2017
Valuentum has been out of Gilead in the newsletter portfolios for some time. As the Best Ideas Newsletter portfolio continues to make new highs, Gilead continues to set new 52-week lows. This is the power of “portfolio thinking,” something we’ve been preaching for a long time. By Alexander J. Poulos Gilead Sciences (GILD) burst into the mainstream in 2015 due to its aggressively priced treatment for hepatitis C (HCV). The company gained notoriety as it priced the treatment at $1,000 per tablet, garnering scorn from politicians on both sides of the political aisle. The original treatment (Sovaldi) was improved on with Harvoni, as Gilead ushered in a new age of cures for a dreaded infectious disease. The difficulty in modeling
These Medical Instruments Won’t Heal Your Portfolio
February 15, 2017
The medical instruments industry is a group characterized in part by diversity, and as such, there are ideas of all shapes and sizes. Let’s dig into two overvalued companies in the space and what put them in their current positions. By Alexander J. Poulos and Kris Rosemann The medical instruments industry has something to offer investors of all strategies. From growth candidates to defensive plays to dividend growth ideas, the medical instruments industry has you covered. However, we’re not seeing much valuation opportunity in the medical instruments industry at this point in time. The market’s advance post the election of Donald Trump has stretched many companies’ valuation metrics past historical norms, and this note intends to highlight two of the
Amazon’s Future May Be Rich, But So Is Its Valuation
February 15, 2017
Amazon continues to disrupt the traditional retail landscape and its cloud-based services are gaining momentum, but shares look to be running ahead of its fundamental trajectory. Let’s take a look at its most recent quarter. By Kris Rosemann Shares of Amazon (AMZN) are trading at more than 40 times 2016 free cash flow, a tremendous level, even for a company whose top-line is growing as quickly as Amazon’s. High levels of uncertainty regarding its long-term operating margin increases the challenges in deriving the company’s “true” intrinsic value, and while we’re fans of the e-commerce giant’s increasing free cash flow generation, we’re not comfortable anointing Amazon Web Services (AWS), the true driver of its profitability and free cash flow improvements, as
Is AbbVie a Value Trap?
February 14, 2017
With uncertainty surrounding the patent of blockbuster drug Humira, AbbVie is looking to deliver another success story from its pipeline. Is it headed for a patent cliff? Let’s take a look. By Alexander J. Poulos and Kris Rosemann A successful operator in the pharmaceutical industry (XLV) is often characterized by having high margins, allowing for copious amounts of free cash flow generation, which can be returned to shareholders via dividends. In today’s yield-starved market environment, major pharma, and the above-average yields of some players within, remains in demand, but investors must be cognizant of the unique risks that face the industry. One key risk remains the loss of patent protection on drugs and treatments that leads to the aforementioned attractive
#14? You Can’t Control The Market
February 14, 2017
Image shown: Wall Street Journal front pages from the Financial Crisis — a reminder that an investor cannot control the markets.
Should this be added to the “13 Steps…” piece?
