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Best Health Care Investor Edward Owens Buys One New Health Care Stock in First Quarter
Posted by: Holly LaFon (IP Logged)
Date: April 30, 2012 05:30PM
Edward Owens bought only one new stock and added to seven others in the first quarter of 2012. Owens has actively managed the $22.5 billion Vanguard Health Care Fund (VGHCX) for more than 25 years and delivered an average annual return of 16.46% since inception in 1984. The fund offers investors low-cost exposure to the health care industry, but the narrow scope makes it susceptible to wide swings in performance.
The sole stock Owens bought in the first quarter is Alkermes Inc. (ALKS), and he made the largest additions to Warner Chil Plc (WCRX) and Boston Scientific (BSX).
The fund’s top holdings are Merck & Co. (MRK), UnitedHealth Group Inc. (UNH), Forest Laboratories Inc. (FRX), Roche Holding AG (RHHBY) and Pfizer Inc. (PFE).
"At our last writing, we asserted that 'global economic conditions have undeniably improved.' That statement seems more open to question now, especially in light of several recent developments, including the U.S. debt rating downgrade and further deterioration in the European financial framework. We believe our investment approach is designed to capture much of the upside in any global economic improvement. It's also important to note that the high-quality business models that typify dividend-growing companies should help mitigate the risks that have become much more obvious of late."
Owens bought 787,900 shares of Alkermes Inc. (ALKS) at an average price of near $18 in the first quarter. It now comprises 0.07% of his portfolio. Alkermes is an integrated biotechnology company that creates drugs to treat chronic diseases, including Vivitrol for alcohol dependence and Risperdal Consta for schizophrenia and bipolar I disorder.
Alkermes merged with Elan Drug Technologies (EDT), a unit of Ireland’s Elam Corp. Plc, on Sept. 16, 2011 and reported its first full quarter results with the combined companies in February 2012. Alkermes posted a net loss of $14.8 million on revenues of $125.6 million, compared to $44 million the prior year. The company’s revenues are based on five key products, including one, BYDUREON, which was launched in the EU in the second half of calendar year 2011. Three of its products will also face or are expected to face in the near term, generic competition.
The company had as of Dec. 31, 2011, cash and total investments of $234 million, compared to $294.7 million at March 31, 2011. The amount diminished due to the use of $50 million to fund the acquisition of Elan Drug Technologies.
Over the last 10 years, Alkermes’ revenue has grown at an annual rate of 15.5%. Free cash flow was negative $14.9 million in 2011 and negative $27.8 million in 2011. With an incalculable P/E ratio, the company has a P/B ratio of 2.5 and P/S ratio of 12.3.
Warner Chilcott Plc (WCRX), a leading specialty pharmaceutical company focused on women’s healthcare and dermatology, is Owens’ largest new add. He originally purchased 232,200 shares of the company in the fourth quarter of 2009 at an average price of near $24.50. In the first quarter of 2012, he added 300,000 shares at an average price of near $17 per share.
In the last five years, Warner Chilcott’s revenue has increased 34.4%, EBITDA 37.7% and free cash flow at 59.4%.
Year to date, its stock increased 44%, including a major surge of approximately 25% in April after the announcement that the company is considering a sale to enhance shareholder value. It is still in preliminary stages and no further developments have been reported.
Owens continued to build his holding of Boston Scientific (BSX), a medical device developer, manufacturer and marketer, in the first quarter. He originally bought 9.2 million shares in the fourth quarter of 2009 at approximately $9 per share, and had bought in subsequent quarters – aside from two small sales – until he owned 36,300,000 shares in the fourth quarter 2011. In the first quarter 2012, he bought 10.5 million shares at an average price of near $6, for a total of 46.8 million shares, a 1.3% weighting in his portfolio.
Boston Scientific’s stock price has increased 17% year to date after a significant slide in 2011, helped by second-quarter earnings per share guidance above analysts’ expectations issued in April. The company’s revenue has been falling in the last three years, from $8.2 billion in 2009 to $7.6 billion in 2011.
In the second quarter, Boston Scientific generated sales of $1.866 billion and earnings per share of $0.08, above its guidance range.
The sales declines were seen in its interventional cardiology segment (down 5% year over year) and its cardiac rhythm management segment (down 10% year over year). Boston Scientific Corp. CEO Hank Kucheman told the Ft. Worth Star Tribune that while sales are lagging, the market for them appears to be stabilizing, though it has not yet turned around. Other product categories improved, such as peripheral interventions and peripheral interventions, which were up 8% each, and endoscopy, which rose 5%.
The company estimates full-year 2012 sales to be in the range of $1.85 billion to $1.95 billion and earnings per share to be in a range of $0.06 to $0.09.
See Edward Owens’ newly updated portfolio here.
Guru Discussed: Edward Owens: Current Portfolio, Stock Picks
Stocks Discussed: ALKS, WCRX, BSX, MRK, UNH, FRX, RHHBY, PFE,