CVS Health Corp (CVS)

You want exposure in the US to healthcare. This one is the best one in the space. Those that can generate top line growth are being rewarded. This one has a sustaining factor. They are tied to the consumer and are taking market share from competitors.

One of the best in its field. The demographics are going to benefit them. At this price, you could buy it here.

Reported this morning. Had pretty decent results and were on target. She likes healthcare as a long-term investment play, because of aging demographics. They have the Pharmacy Benefits Management business as well as their retail. Very uniquely positioned. Made an acquisition last year that brings them into the long-term care channel as well as buying the pharmacies from Target. She would start buying this here. It has pulled back.

This has set back from its high, but FMV is only about 18%-19% above where it is now. That may be enough to turn things around. It is on structural support at around $94, and maybe it will rebound from here, but the stock isn’t cheap. If there is further weakness in the market, he wouldn’t be surprised if this falls further.

They are a strong pharmacy benefit manager, as well as a pharmacy. They recently bought Omnicare, who supply nursing homes with a billon prescriptions a year. They are predictable. 15 times earnings. It is a great place to be if you are nervous about China.

They are also in the pharmacy benefits management. They have clinics and are into long term care. They will grow in the low to mid-teens. They are focused on outcomes, which is significant in the US.

From an earnings revision and stock standpoint, this is good. You’re looking at a 10%-12% growth at a mid-teen multiple, which is in line. He is neutral on this. Recently issued guidance that came up a little bit short of street expectations, so the stock has come off a little. A well-run company.

Walgreens (WBA-Q) is proposing to buy Rite Aid (RAD-N). WBA-Q and CVS-N are obviously the leading US drug retailers. She likes the drug retailing and the Pharmacy Benefit management businesses of CVS-N. They have done a couple of transactions in 2015 that she thinks will be accretive in 2016. They bought Target’s 2000 pharmacies. They say only 5-10% of Target customers use the pharmacy and aim to increase that. They announced a 21% increase in the dividend and 10-14% earnings growth for the next few years. The number of scripts per person increases as people age. 2% dividend that is increased on a regular basis. Buy on a pullback.

It fortifies his thoughts on WBA-Q of today. It is similar. The difference is that they teamed up with Caremark some years ago and has that aspect to their business. They also are buying Omnicare. They are both well managed.

Sold his holdings about a month ago in order to take some profits. Technically it has started to roll over a little and fell below the 200 day moving average. He was starting to see lower highs and lower lows. Likes the name quite a bit. It is trading at nice fundamentals and valuations, 18X forward earnings and a growth rate near 15%. This is a name he would be happy to re-enter.

Likes the space, but sold his holdings a few months ago when it broke a long upward trend. Chart shows a little support at around $80. There have been a lot of costs that have been uncertain for them. Thinks long term this will be a good name and he would like to get back into it. You have to wait until it breaks out at around $115. He would watch for something between the 125-150 daily moving averages.

One of the leading drug retailers in the US with about 8000 locations. That is about two thirds of their earnings and the other is their pharmacy benefit business (PBM). Both work well for them. They can leverage off their retail base accessing drugs for their customers. Recently acquired Target’s 1600 pharmacies and will rebrand them as CVS pharmacies. Also, bought Omnicare which gives them new long care operators. Dividend yield of 1.49%.

CVS Health (CVS-N) or Walgreen Boots Alliance (WBA-Q)? He owns both and has done very well with them. They have both been quite dynamic in their operations over the last while. This one made some very bold moves, some of them internal. They stopped selling cigarettes, which was a good strategic move. On a valuation basis this one is a little more attractive, but it is really a toss-up.

(A Top Pick Oct 16/14. Up 33.94%.) He continues to like this particular space. Given what is happening to the Affordable Care Act in the US, this company has almost 100% domestically US oriented revenue, so not affected by foreign exchange headwinds. Aging demographics is going to help the stock.

It is a great long term story. They have the benefits manager as well as the drug store chain. He thinks it is a great story over the next two years.