Merck & Company (MRK)

These are the anti-acquisition guys. There are a whole lot of low risk opportunities on drugs they will develop themselves.

He has always been slightly cautious of the patent protected pharma industry. Drugs are very expensive to create, then eventually they come off patent and also there is always the risk of litigation. He prefers TEVA-N, who changed a drug to be several times ago and were able to extend their patent.

For many years he has tended to stay clear of the traditional pharmaceuticals that have primarily chemical-based compounds. Feels that from a financial standpoint they have a very stiff breeze in their face. The generic drug legislation in the US moves these drugs away from these companies and into the hands of generic operators. Basically the pharmas lose a lot of the revenue oomph that they are providing.

Doesn’t see a home run for this, but he does see $63-$64 in 12 months. This has been flat, and is in a hot group. They have a lot of acquisitions and divestitures and have raised the dividend. Also, doing a huge buyback, which they do every year. Yield of 3.15%.

(A Top Pick June 10/13. Up 26.11%.) This still has some upside potential left in it. It is getting up close to his original target.

(A Top Pick June 10/13. Up 24.62%.) This is part of the healthcare group which is now running up against pretty severe resistance. He is now prepared to get off this one and go elsewhere.

(A Top Pick June 4/13. Up 23.02%.) Acquiring Idenix (IDIX-Q) for their hep C product. Hep C is a massive market, and there is a race going on. Merck has a good foothold in the space to begin with, and Idenix has a very good product. Pharmaceutical industry is still relatively under owned.

(A Top Pick June 11/13. Up 28.38%.) Acquiring Idenix (IDIX-Q), which is a good deal for them as it supplies another avenue of growth. At the same time, it was a relatively expensive deal. Valuation is still not too daunting. His one-year target is roughly $64. Still a good Hold.

(A Top Pick June 11/13. Up 27.12%.) He still likes this. There is talk about them selling the consumer business for $14 billion. If they do, shareholders will get some kind of return. Still not overly expensive.

Likes the consolidation in the business. Likes how these companies are smarter in how they spend their R&D dollars. Healthcare is more sensitive to the economy. The more people working, the more scripts they fill, etc.

(Top Pick Apr 9/13, Up 35.21% Total Return) Shown to have predictable assets and durable cash flow. Strong dividend policy. We are also seeing strong script growth across the industry because of the affordable care act. Activist shareholders are stepping in because they recognize the strength of the balance sheet. Now he has to stay in it.

(A Top Pick April 9/13. Up 28.48%.) About a year ago he made a move to financials, healthcare and consumer on the back of lower inflation and better equity markets. Biotech and Pharma have really been in the top 2 or 3 sectors in the market over the last 18 months. With the Obama care in place, it looks like there is going to be more drugs sold, not less.

Switch eBay (EBAY-Q) for Merck (MRK-N) for a 3-5 year hold? This is now approaching its model price of $60, only a 9% upside. 3.2% dividend yield. Thinks you could flip a coin on who does better. You will do well on both.

His preference is to own something like JNJ which has a much more diverse business. If you are relying only on pharma then it is harder. Although they have good pipelines it is not like the ‘90s.

Prefers JNJ-N. Likes health care as a sector. Thinks this sector is set to do very, very well. Concerns about patent cliff have come and gone. Should have some decent dividend growth going forward. Has been consolidating with the market and now there is room to the upside.