Merck & Company (MRK)

Not crazy about the big branded pharmaceuticals. Facing unrelenting competition from the generics. As well, globally governments are trying to cut healthcare costs. When there is a substitute for one of their drugs, governments force everybody to use it in preference to the branded more expensive one. The costs of finding new drugs and bringing them to market our enormous.

The opposite of PFE-N and faced a patent cliff but has a poor pipeline. Would not own it.

Chopping over 8500 jobs so the stock took a jump. Although he doesn’t own this, he likes the healthcare space in general, which has lots of pricing power. Healthcare has been really focused on management. They all thought they were growth stocks in the 90s and flooded the family doctor sales process but didn’t have much in their pipeline to show. They have slimmed down and have focused on high ROE and investment cash flow.

Where can you buy, particularly in the US, forward 12X earnings and a 4% yield? Missed a quarter earlier in the year. Have a good pipeline. Have some positive indications on their melanoma drug that came out in the past couple of weeks. There is a thought that they might split themselves into pieces which would be worth $55.

Entire healthcare index in the US hit a low at twice Book, which was last seen in 1982. Whole group has been recovering. Currently heading towards 4X BV but it peaked at 10. So he thinks there is room for these stocks to keep on moving. He went through the index to see which one had been left behind and had a decent dividend and chose this one.

As a general view, he feels there are some good opportunities in the healthcare space. His office owns Pfizer (PFE-N) instead. Bad news in healthcare is behind it. With the aging population, this sector would be a good area to be invested in for the long-term. 3.5% dividend yield.

Pharmaceutical sector was way out of favour for 12-13 years. Recently, what made it unattractive has made it very attractive. Have predictable cash flows. Paying out about 50% of their earnings, (3.46% dividend yield) and this could go higher. Have recently been having good success in science.

Pharma is one of the strongest performing groups after many years of underperforming. This company has an earnings yield of just over 8%. A US treasury bond yield is at 1.7%. The market has assessed the risk of default of this company as being less than a U.S. Treasury bond. There will probably be 8%-9% cash flow growth over the next 5 years. Dividend yield of 3.76%.

Probably has a little better pipeline coming then Pfizer (PFE-N), so may be a little bit better growth. Still very modest growth for a great company but not cheap enough to buy it here when you can get companies with good yields and good growth at reasonable prices.

(Market Call Minute.) Likes the group in general.

Pharma have been one of the best performing sectors last year. Good focus. Going forward, their issue is the large drugs going off patent. He does not see the potential going forward. He prefers diagnostics or nutritionals.

(Market Cal Minute) $57.78, 51% upside.

Had a whole lot of problems with patent expiration. Now they have had their big patent expirations out of the way. Doesn’t know what is going to happen in the next couple of months.

(Market Call Minute.) Ranks very well. Nice and safe dividend of 3.8%.

Trading at about 12X earnings which is not really expensive. Has over 3% dividend. The problem is that most people don’t expect the earnings to grow and are actually going to decline over the next few years. Would prefer Abbot Labs (ABT-N) or Teva Pharmaceuticals (TEVA-N).