CVS Health Corp (CVS)

A business he likes very much, extraordinarily run. It had a tremendous run. They are well structured in terms of balance sheet. It has been a boon in that they are a pharmacy benefit manager with a retail division. It deserves the multiple it has. Lots of cash getting returned to shareholders in shareholder-friendly ways.

Switch from Abbott Labs (ABT-N) and Johnson & Johnson (JNJ-N) into something more domestically focused? Currencies will be a headwind for multinationals, because they have their revenues come from outside of the US. However, she likes healthcare as a general investment theme and she wouldn’t compare these 2 companies to CVS, which is a Pharmacy Benefits Management (PBM) and a retailer. The other 2 are manufacturers. If you own these latter 2, she would continue to Hold. CVS has done very well, partly on the back of lower energy prices and more spending at drug retail, but thinks it is fully valued.

Walgreen (WAG-N) or CVS Health (CVS-N)? If he had to pick one, it would be this one. It has been a very steady performer. Has nicely growing earnings, about 15% this year and 15% next year. Very highly focused on the consumer. Return on equity has gone from about 11% to about 15% over the last 2 years and is likely to continue to perform quite well.

(A Top Pick Dec 3/13. Up 38.14%.) Likes this area quite a bit. A domestic play, so you don’t have to worry about the improving US$ against every other currency. They no longer sell cigarettes in their drugstores, and this is a major road that they are going down. Looking to capture insurance contracts, federal contracts, federal health, and this can be highly additive to this company’s operations.

The biggest thing with this company and the retail space in the US is the price of gas basically coming down. While the pharmacy component is a big part of this company, you also see a good “front of store” component. With retail sales heading into the holidays, he expects there will be some positive
retail numbers and consumer confidence in the US. You could hold this for a long period of time.

Feels it is important to stick with names that have high US revenues, and this one has 100% of its revenues from the US. The largest healthcare provider in the US. They are going to benefit from an aging US population, an increase in generic drugs and an increase in growth in specialty prescription drugs. Trading at 17X Forward Earnings and has a 14%-15% growth rate. A pretty cheap 1.2%X PEG ratio relative to the other consumer staple names.

This closed at $79.30 and his model price is $85.27, a 7.5% upside. There is going to be more volatility in the market, and it is going to be very interesting in the fall, especially with what is going on with bond yields in the last month or so. If you are looking for non-volatile names, this is a perfect candidate. Yield of 1.4%. It’s a grower, so you will maybe continue to earn high single digits, maybe double digits if you order for a year.

A drugstore and a pharmacy benefit manager combined. The drugstore story is great because of the aging population plus the greater number of insured in the US. A lot of the business that is happening is generic, and the margins are much, much higher. Dividend yield of 1.39%.

Sometimes something that looks frothy just keeps going. If she wants to own it, she just buys it. The multiples on it are still pretty fair. Pharmacy is about a third of their operating income. It’s a good name to own and you will be fine with it. She has nothing in this space right now.

Dividend growth rate has been good over the last 5 years, but it is only 1.5%. 18-19x multiple and he thinks this is rather high. If it does not hold support about $77.20 you should manage your risk.

He bought 6 months ago. Drug store business. 2/3rds comes from the pharmacy end. Generics are taking over more and more and revenues are coming down but margins are exploding. They announced they were dropping cigarettes and will cost them about 9 or 10 cents a share. Most of their profits come from health plans which don’t get along with cigarettes. Federal employee health plan which they now think they can win will add 20 cents per share.

Owns a pharmacy benefits manager (PBM), sort of the back end of the business as well as a retail storefront. With the changing landscape in healthcare, they have a really nice runway into earnings over the next couple of years. From the PBM side you are going to pick up on the drugs, but also the management of the plans that come to them as there are going to be more people under coverage now and they will have choice of coverage and this company will be relevant to them. Just reported a nice beat in earnings and have reaffirmed their guidance. Yield of 1.57%.

Pullback has been partly because of the decision to get out of the cigarette business. He would not go here because we don’t know what will happen from here as a result.

Has done very well. This is a combination in that you get the yield play along with the stability of their retail in the drug side, but then you have the front end of the store where it is more discretionary spending. Valuation is right around its historical average. If the market as a whole continues to do well, this is not a bad place to be. She doesn’t own it as she is not excited about owning companies that look like they are fairly valued.

Just bought this recently in the $66 range. Feels the space has a lot of potential and likes this as well as Walgreens (WAG-N). After a very robust 2013, a lot of individual issues of good companies and good prospects are starting to hit normalized valuations, so not a lot of opportunity for multiple revisions. Within the healthcare space, there is a lot more here. Only trading at 14X earnings and we have an aging population. With broader insurance opportunities comes more activity on the back end of stores.