About the big correction of McKesson and Novo Nordisk... and many other healthcare stocks

Healthcare stocks are going through a tough time. It seems that a lot can be explained by the incoming american election. A lot of people seem to be scared of Hillary Clinton because of her views regarding rising costs in the pharma industry. Well, more people may be scared about Donald Trump about his views on everything.

Finally, everybody is scared by at least one of them.

A couple of weeks ago, Angelo Dallas, a regular commentator wrote that McKesson looked like a great pick to him.

I agree that this stock would be at least an OK choice. The drug distributor works in an oligopoly and looks very solid.

But, in case you didn't know: life is a bitch. Life is constantly laughing at you. More so when you express your opinion in public. In these cases, life's favorite passtime is to kick your ass. Like with a huge correction.

The same happened at the same time for Novo Nordisk, one of my favorite stocks.

Both stocks have been down 15-20% on a single day, on the report of slashed outlook. I don't understand why the reaction was so brutal because both are great companies. They're not going bankrupt. They just won't grow as much as anticipated. But come on, there's plenty of stocks selling at 20-25 times earnings that are not growing at all. I don't understand why NVO and MCK are down like that. 

If someone is looking for a momentum investment, healthcare is surely not the best sector. But, in the long run, I still believe in this sector. I may be wrong because I'm often wrong. But come on, if healthcare stocks don't recover, my knowledges about investment are fucking worthless. Which means you're reading worthless shit instead of playing an amazing game of Candy Crush.

Check all these stocks. They almost all trade at historic lows and they all have a ROE higher than 20.  That's crazy. A price war may explode in this sector but I simply can't believe that things won't get better... 

McKesson
Average ROE last 5 years: 21
Actual ROE: 22
PE high last 5 years: 30
PE low last 5 years: 16
Forward PE: 9

Novo Nordisk
Average ROE last 5 years: 62
Actual ROE: 89
PE high last 5 years: 30
PE low last 5 years: 21
Forward PE : 15

Gilead
Average ROE last 5 years: 70
Actual ROE: 103
PE high last 5 years: 41
PE low last 5 years: 9
Forward PE: 6

Celgene
Average ROE last 5 years: 27
Actual ROE: 39
PE high last 5 years: 62
PE low last 5 years: 24
Forward PE: 15

Jazz Pharma
Average ROE last 5 years: 21
Actual ROE: 23
PE high last 5 years: 176
PE low last 5 years: 12
Forward PE: 10

United Therapeutics
Average ROE last 5 years: 29
Actual ROE: 43
PE high last 5 years: 34
PE low last 5 years: 9
Forward PE: 9

Stingray, Sleep Country and Spin Master

You're not a serious investor? You're looking for new names without any track record? You want high growth without any insurance that the growth can still be there in the future? You want a new messiah, because the old ones are not that original? You like the expression: "A beau mentir, qui vient de loin?". You don't give a fuck about the fact that many high growth stocks go nowhere after one or two great years?

I have three picks for you. As I wrote, their track record are short so the numbers are pretty limited.

You don't care because you can see a trend in a one year chart?

Really?

Fuck you.

Stingray (RAY-A.TO)
Actual ROE: 21
Forward PE: 17
EPS growth 1 year: 186%
Performance 1 year:  15%
Dilution / buyback:  high dilution
Debt level: medium (6 times earnings)

That stock has recently been recommended by Alain Bouchard (Couche-Tard) on television, in Québec. He seems to think that the CEO of this business shows a lot of potential. I don't think that Alain Bouchard, one of the top managers in the history of Canada, could praise the work of a stupid guy. So, it may be a stock to remember.

Sleep Country (ZZZ.TO)
Actual ROE: 33
Forward PE: 19
EPS growth 1 year: 118%
Performance 1 year: 102%
Dilution / buyback: high dilution
Debt level: medium (5-6 times earnings)

Please, take note of the hilarious ticker of that stock.

That stock looks great because this industry is boring/relaxing (mastress). That's exactly the kind of business that shouldn't be affected by anything. Or, at least, not many things (regulation, innovation, etc). 

Spin Master (TOY.TO)
Actual ROE: 61
Forward PE: 19
EPS growth 1 year: -51% (negative)
Performance 1 year: 57%
Dilution/ buyback: high dilution
Debt level: medium (5-6 times earnings)

That business builds toys. They have a big blockbuster (Paw Patrol) which I know jack shit about. My heart became black when I started investing. 

Jason Donville seems to like that one. Well, I'm not so sure because I don't know if he's still alive. If he's alive, I think he likes it. The ROE is great there. And I don't know why there's been a decrease in the EPS over the last year. Probably some of that usual shit about these stocks without any track record.

Some fucking random event transforming a superstar of the market in some fucking Avigilon shit.

Portfolio review - october 14th, 2016

There's been some changes in the Penetrator Portfolio recently. I got rid of some stocks like Polaris and Apple, reduced some others like Knight Therapeutics, CGI and United Therapeutics and I adopted a partial Giverny Capital strategy by acquiring my three favorite stocks owned by Giverny: Disney, Bank of the Ozarks and Mohawk Industries.

2016 has been a so-so year. My performance is slighly negative (about -5% since the beginning of the year), but I don't find that too bad considering the fact that a big proportion of the portfolio was invested in Valeant and Concordia Healthcare not so long ago.

In other words, it could have been much worse. I'm back from the war with my two legs and my two arms. I'm just limping.

The market did way better than me. I've paid a lot of money to learn the lesson of trusting my check-list instead of trusting so-called professionals.

Let's take a look at my 19 stocks portfolio.

Canadian stocks:

Alimentation Couche-Tard (ATD-B.TO): 9,5%
Constellation Software (CSU.TO): 8,2%
CGI Group (GIB-A.TO): 7,5%
Tucows (TC.TO): 5,2%
Linamar (LNR.TO): 5,1%
Hardwood Distribution (HWD.TO): 4,9%
Knight Therapeutics (GUD.TO): 3,6%
Stella Jones (SJ.TO): 2,7%
Ceapro (CPZ.V): 1,5%

US stocks:

Gilead (GILD): 6,5%
Ross Stores (ROST): 6,5%
United Therapeutics (UTHR): 6,2%
Dollar Tree (DLTR): 5,7%
Biogen (BIIB): 4,6%
Novo Nordisk (NVO): 4,6%
Lithia Motors (LAD): 4,6%
Bank of the Ozarks (OZRK): 4,3%
Mohawk (MHK): 3,1%
Disney (DIS): 2,9%

Cash: 2,6%

Average PE ratio of the portfolio: 16,3
Average ROE of the portfolio: 38
Average Beta of the the portfolio: 0,83

Berkshire Hathaway (BRK-A or BRK-B)

I've never been a big fan of Warren Buffett. The 86 years old fucker seems to have lived an empty life, always focussing on money and on nothing else (family, history, culture, etc). Surely a good guy, but not as stimulating and fascinating as Steve Jobs.

And I've always found that Berkshire Hathaway was a boring investment. How could an investor put money in that boring stock? The company is so huge that it's performance is more and more similar to the market.

Well, that's what I thought.

The chart below shows the performance of BRK VS the market over the last 5 years. The difference is even bigger if we look at a 10 years chart. As you can see, BRK beats the market easily.

With Berkshire, you'll get a shitload of great businesses: you have 100% of GEICO, 100% of Duracell, 100% of Precision Castparts, 99% of Fruit of the Loom, 27% of Kraft, 16% of American Expres, 10% of Wells Fargo, 9% of Coke, 8% of IBM and many, many, many more.

How much money gets Berkshire via dividends each year? Well, they got 400 000 000 shares of Coke which distributes 1,40$ each year. So, with only Coca-Cola, Berkshire gets 560 000 000$ each year. With Wells Fargo, Berkshire gets about 730 000 000$ each year... So, I don't know exactly how much money BRK gets with it's dividends, but it's at least 5 billion dollars each year. Probably much more.

The PE of the market is now over 19, which is expensive on an historical basis. There's still many stocks selling at 10-12 times earnings, but overall, it's an expensive market. Berkshire is selling at 14 times earnings and at 1,4 times book value. Warren Buffet once said that at around 1,2 times book value or below, it was a good idea to buy Berkshire (there would be buybacks). At 2 times book value, it would not be such a good idea. So, we're closer from the "good idea" than from the "not so good idea".

I've came to realize that many big investors have a big part of their portfolio on Berkshire for a good reason: that stock is safe. And that stock beats the market. And that stock is a core holding that regulates and balances your portfolio. It won't make your portfolio a super performer, but it will raise your performance to a minimum level. With BRK, you're almost sure to beat the market in the long run. So, if 50% of your porfolio is made of BRK, 50% of your portfolio beats or achieve about the same performance as the market. You just have to chose a few great performers for the other 50% of your portfolio..

Given the state of the market, the abudant liquidities of BRK and the fair price of the stock VS the high price of the market, I think it would be a good idea for anybody to invest a large part of their portfolio in BRK.

That's what I say. That's not what I do. But I'll probably move in that direction, sooner or later.

Finally, here's some BRK metrics according to Reuters:

PE: 14
ROE: 10
Beta: 0,75
Annual EPS growth last 5 years: 13%

Canadian VS US market

I'm seriously thinking about changing the name of this blog. Jason Donville seems to have vanished. I'm constantly writing non-Donville related stuff and I feel more and more uncomfortable about it. It looks like he commited hara-kiri, ashamed by his poor performance.

I could say that this fucking Directcash Payment (DCI.TO) is being bought by a company that's probably going straight into a wall, because that fucking industry of cash machines is going nowhere. If you had buy that shitty DCI 5 years ago, your purchase price would have been the same as the actual price of the stock. Lucky you, you would have got a great dividend to forget all the emotions you've been through with that shitty stock.

OK, let's forget that name forever now and let's talk about the canadian market. 

I've read an interesting article today on double-v, double-v, double-v point les affaires point com saying that the canadian market was expensive and it was probably a better idea to look south of the border.

I know that some people disagree with me but I'm still thinking that Linamar is pretty cheap. Some might say that the auto industry is reaching the end of it's cycle. Well, the results of the company seem to show that everything is doing well. Too, the balance sheet is great. And even if the cycle is going to an end, Linamar looks mucho better to me than Carmax, a darling of many investors, on every metric. At 6-7 times earnings, that stock is selling at the price of a stock losing money or going bankrupt. I can't sell LNR even if the market is not excited at all about it.

Stella Jones looks good too. Not exactly cheap, but the last results were great and this stock had an amazing performance over the last years. The beta is very very low, which is a great indicator of a stable business if you ask me. This industry is so boring that it's probably very safe to invest in it. It's like Mohawk. Leaders of a boring industry about which nobody gives a fuck. Google likes to try a lot of things not related to their core business but they probably won't start making carpets and poles.

Hardwood Distribution is not too pricey and their last results were great. It's another lumber stock like Stella Jones and probably that some investors are worried about lumber discussions between Canada and USA. Well, if everything looked well on every aspect, the PE ratio of SJ and HWD would be much higher and I wouldn't be writing about them right now.

Home Capital Group is very very cheap on an historical basis. You won't get a lot of growth here, but that stock is a great candidate to be bought by a big bank. I know, people have been talking about that speculative buying for many many years and nothing happened. Well, don't forget that very average stocks like Rona, Directcash Payments and Cabela's (today) have been bought by larger companies. A good business like Home Capital Group is superior to these three names.

Alimentation Couche-Tard is expensive, but it's one of the few stocks I'd always be confident about, whatever the price is, to a reasonable extent. That stock is probably a buy.

Except for that, I'd probably look to the States. A lot of great stocks are not too expensive there. Big biotechs like Biogen, Gilead, Jazz Pharma, United Therapeutics. Novo Nordisk (a danish stock listed in the US) had an important correction recently. The stock is still a bit pricey, but what a fantastic company on every aspect.

Mohawk, Bank of the Ozarks, Disney (Giverny Capital stocks) are all attractive. But they're just OK ROE stocks (ROE = between 15 and 18). Berkshire Hathaway is not that expensive. Dollar Tree had a big correction too and with their merger with Family Dollar, I believe this stock is a great addition to any portfolio. And Apple hasn't been expensive for many many years.

There's some banks too like Bank of America, Wells Fargo or the insurer AIG. All cheap names.

So, yeah, even when the market looks pricey, there's some good stocks to buy out there. 

Another pretty good reason to invest on the stock market

Let's say you're a girl and you've found out a boy that you like. Or love. I don't know the difference.
You soon become pregnant and about a year and a half after you first met him, you have a baby.

Then, two months after the birth of the baby, you find shocking messages on the cell phone of your boyfriend to realize that he's been cheating you since the beginning of your pregnancy. You're fucking mad so you go to wake him up around midnight to ask him if he had cheated on you. He's asleep and confused but it's clear that the answer is yes. So you kick him out of your condo (because, at least, it was a condo that you bought before meeting him) to become in a matter of seconds a single mother with a 2 months old baby.

That's why investing is important. Because you'll need money and support from then on. And if you haven't that much money, you'll need your brother and your parents who have put a good chunk of money on the stock market.

That's my sister's story, 48 hours later.