Category Archives: $VRX

$VRX – Ackman bails out nursing $4bn loss – lessons

The fall of Valeant Pharma matches that of the Roman Empire, dropping from $270 to $10.50

Ackman acquired a position after trying to buy Allergan for Valeant before it was acquired by Actavis (now Allergan Inc).

Valeant’s business model was fairly simple: buy a pharma company, over pay, leverage but hike prices which makes the overall investment pay off over 4-5 year period.

Ackman, Paulson and ValueAct loved this ruthless model – and called it’s CEO Pearson a Star – I say ruthless as it is the end patient who suffers as it makes an essential drug un-affordable for many people.

Then came a tweet from Hilary Clinton slamming drug companies who raise prices – Ackmans investment – was at one point up over $2bn – gradually started to fall – Trump also tweeted and the stock continued to fall – now Ackman started to lose money…..then news of distributor called Phillidor was being used by VRX as way of feeding these higher prices into the market – Ackman seemed not aware of this relationship – in fact he was not aware of many things about VRX – with all his so called ‘smartness’ and backup of smart Analysts – he is no smarter than me or you!…. His final loss was a whopping $4 billion dollars, bailing out at $11.

So why did he not sell earlier – why did he not set a stop? Because Ackman and many so called ‘smart’ investors, think they can never be wrong – they do not doubt themselves or their judgment ….which is a trait you may need to persuade investors to part with billions of dollars to invest with you – but humility goes a long way – no-one is smarter than the market. I actually met Ackman at the Bvalgari hotel in London – and said he could ‘fix’ $VRX – but the fact the company could not raise prices, meant that the business model was broken and could not be fixed – too many companies were acquired at too high a price, with too much debt.

The 2Centview method always sets a stop – you should exit if stock reaches between 30-50% of it’s high – do not fight the market – look to re-enter when the stock stops falling and has turned itself around – do not double down on a bad position!

2CentView had a trading position in $VRX opened at $35, closed at $25 for a loss.

2CentView performance in 2016

The 2CentView portfolio was up 12% in 2016, which outperformed the S&P500 by 3% but below the FTSE100 which returned 14%.

The objective of the 2CentView system is to outperform the index in rising markets and be at least in line when the major index is flat or falls up to 20%, and outperform if the market corrects more than 20%. The portfolio is benchmarked vs. the SP500 (50%, up 9.5% ) and FTSE100(50%, up 14%), so the outperformed by 0,75% in 2016.

Overall return since 2013, 86% (21.5% annually).

2016 was a volatile and difficult investing year, starting with a sell off in February, triggered by low oil prices and a distressed energy sector. This was followed by Brexit and the election of Donald Trump – both results proving the polls are meaninigless! Many pundits advocating ‘sell all’ following both of these events, but the key was NOT too panic, and look at these events as potential buying opportunities – quality companies will always do well no matter who is in power!

Where it did badly:
2 Core positions were savaged – $FIT (FitBit), $SPWR (SunPower) – both these core positions were down 30% following results, so they traded way through long term stops – 2Centview eventually did exit – the overall pain was not great as 2CentView always sells higher up to reduce the overall cost basis and protect you from the ‘wide arcs’, as the legendary investor Bill Miller says

“Stocks, markets, and money managers’ performance are subject to enantiodromia, the tendency of things to swing to their opposites. Those swings can have wide arcs, and unsustainable trends can sometimes persist beyond the ability of one to endure. That is why most investors are out of stocks at the bottom–they are tired of losing money–and fully invested at the top–they believe their good performance will persist despite their stocks or the market’s being overpriced.”

Trades in $SPD (Sports Direct), $EZJ(EasyJet) [ post Brexit trades],$SKX (Skechers), $VRX (Valeant) were all stopped out.

Where it did well:

Core positions which did well: $MS up 60%, $Z (Zillow group), $ACA (Acacia Mining – gold trade) up 109% were the best performers with other core positions in Apple, FaceBook, Celgene, DLG up between 5 and 15%.

Trades that did well : $LNKD (linked in) – bought by $MSFT, $BOO – (bought after sell off following Trump victory). $DVN – Devon energy  doubled.

Also taken a position in AK Steel and IAG following Trump Election (up 30% and 5% respectively).

The portfolio benefited a bit from the rally in the US$, but the currency exposure is broadly hedged using the $PUS contract.

Main lesson learnt from 2016 – DO NOT PANIC – exiting the market was the worst possible thing you could have done in 2016 – but STICK to your stops if the market or an individual position continues on a downward spiral (both $SPWR and $FIT $9 exit stops were hit).

2CentView is that 2017 could be a great opportunity to make 15-20% if Trump delivers on his election promise, tax cuts and infra-structure spending could really boost company earnings. More on the next tweet for themes for 2017.

Happy 2017  from the 2CentView team.

$VRX (Valeant) – Stopped out ….turning out not be a quality company

2CentView believes in buying quality companies and holding for long term growth.

Not even Warren Buffet knows where stocks will be tomorrow, in a month, 6months or even a year, but he does know where quality companies will be in 5 years – much higher!….

However, Valeant is turning out not be a quality company as it is accused of over charging for drugs, its accounting practices have come under question again and it has the worst possible investor relations department – who just cancelled 2 meetings with shareholders….

Maybe under all this the company is sound – but there are just too many unknowns and investors have just sold this stock from $250 to $65! Ackman, ValueAct and Paulson – all smart investors are still long – nursing hundreds of millions of dollars in paper losses…they have the stomach for this – we perhaps don’t!

2CentView stopped out at $76 – best to stay away from any company where there is any sign of accounting issues….no matter which star hedge funds may own them…or how cheap they look to fair value

$VRX (Valeant Pharma) – FV=185 vs 115, could be a trade on following deal with Walgreen

Valeant signed a 20 year distribution deal with Walgreen which was well received by Analysts.

The stock has been crushed from a high og $263 to a low around $70 – but if the the business model is sound, and they can reduce debt in 2016 and meet analyst earning expectation, the stock is cheap.

Trade: Buy here at 116, target $175, stop $80.
2CentView FV = 185

This is still a very risky stock, Credit Default Swaps are still wide – but if the business model is sound, and they can use earnings to reduce debt as they had planned to do, there is more upside than downside.