dimanche 22 octobre 2017

Canadian Healthcare/Pharma: shitty sector

Once upon a time, I thought that investing in the sector of canadian healthcare/pharma was the best thing I could do.

In retrospect, I was fucking wrong. Actually, the canadian healthcare/pharma sector is great for only one thing: destroying value.

Let's see how things have been for 10 of the most popular canadian stocks in that sector:

Valeant (15,33$)

Performance last year: -48%
Performance last 5 years:  -72%

Concordia Healthcare (0,72$)

Performance last year: -88%
Performance last 5 years:  -89% (the stock was first traded in january of 2014)

Cipher Pharma (4,49$)

Performance last year: -6%
Performance last 5 years:  148%

Nobilis Health (1,40$)

Performance last year: -57%
Performance last 5 years:  1266%

Patient Home Monitoring (0,33$)

Performance last year: 91%
Performance last 5 years:  306%

CRH medical corp (2,97$):

Performance last year: -52%
Performance last 5 years:  747%

Ceapro (0,59$)

Performance last year: -68%
Performance last 5 years:  1080%

Biosyent (9,84$)

Performance last year: 16%
Performance last 5 years:  958%

Knight Therapeutics (8,58$)

Performance last year: -4%
Performance last 5 years:  124% (the stock was first traded in march of 2014)

Prometic Life Sciences (1,61$):

Performance last year: -50%
Performance last 5 years:  973%

If you take a look at the performance for the last 5 years, most of these stocks look great. But if you look only for the last year, the performance has been awful for most of them. And more than anything else, how could you be amazed by a return of 1080% or 1266% for a stock that is selling for less than 3$?

Most of them are small caps. Should you buy something on the venture or something on the TSX selling for less than 5$? Actually, all of them are selling for less than 10$ except for Valeant which is selling for 15$ (and which was selling for more than 300$ not so long ago).

For me, the answer is clearly a no. Do that only if you're a fucking gambler and I bet that things will sooner or later turn out bad for you if you're that kind of investor.

The only two stocks that are a little safe on that list are Knight Therapeutics and Biosyent. But they're clearly not blue chips.

Take a look at that list. Most of the names there are forgotten even if that list is only 17 years old. That sector is simply not safe in Canada.

8 commentaires:

  1. Great article. A good reality check.

    We need more boring companies that print money like CCL with their labels, packaging and containers or Lassonde with apple juice.

  2. Not all Canadian healthcare has done poorly. Businesses like Chartwell and Sienna have done well.

  3. RX is my biggest personal holding and I own it across all our model portfolios. You're right... not a blue chip but VERY well run with zero debt (in fact I think they have over $15m of cash) and consistently generating over 30% ROE. They also have two huge cardiology products coming on line in 2019 which they estimate will increase their revenues by 60%. I've spoken a lot about them on BNN and such. RX is a compounder and conservatively run.

  4. I seldom think of a particular sector being a permanent bad place to invest. It’s just human nature, a sector gets popular, then gets overheated and implodes leaving investment capital to move on to the next hot thing or sector. That’s the market.

    I hold both Knight Therapeutics and BioSynet and have high hopes for both of them. Knight Therapeutics was well bought (just after it was spun off), BioSynet was poorly bought around Sept 2014, just before it started to track downwards. The operating numbers for BioSynet were always so good I had to keep holding it. It seems to be coming back well now.

    The lesson here is that money is forever on the move in and out of different sectors of the market place. I read a book last year called Capital Returns in which the authors lay out the case for the Capital Cycle…A phenomenon that both Howard Marks of Oaktree Capital Management and Bruce Flatt of Brookfield Asset Management seem to believe in.

  5. We got stopped out of GUD. Also didn't really meet our criteria given their ROE isn't north of 20% and they don't have a history of high ROE generation. We bought it more because the CEO has a very good track record of creating shareholder wealth. We may buy it back if/when it breaks to new highs BUT I think it's very telling that both GUD and RX are being tight fisted with their cash while VRX and CXR were out throwing money around they didn't have like drunken sailors. At the end of the day the tortoise wins the race. RX is a tortoise... I don't know enough about GUD to make a similar but my sense is Goodman is also a prudent and effective capital allocator.

  6. I also don't like GUD raising money often... especially for it to sit on their balance sheet. My 3 cents.

  7. Lots of smart investors upset with Goodman for raising 3 rounds and then sitting on his hands. The counter-argument is that you raise money when you can, he has significant skin in the game and so his interests are aligned with shareholders, and that running a business can be lumpy; things don't necessarily happen when you want or need them to.

    1. I agree but it would be a good question to ask Goodman during earnings calls.