Free Money Stock #2 — High Yield Healthcare (Sosnowski)

By Travis Johnson, Stock Gumshoe, August 5, 2008

Remember back when I promised to look through the “Free Money” stocks teased by Ann Sosnowski for her Safe Haven Investor newsletter? Well, stomach flu and speaking engagements intervened to slow the progress of the Gumshoe, but progress there has been … I can finally move on and look at a few more of these.

The first one we’ll take a gander at is “Free Money Stock #2” — if you don’t remember this particular ad, it’s focused on following the purchases of major investors through their 13F filings with the SEC, and picking out the plum stocks that are chosen by Wall Street wunderkinden.

In this case, Sosnowski is riding on the tails of David Dreman and Charles Brandes, both of whom are well known “value” investors who espouse a fondness for the teachings of Benjamin Graham, the patron saint of value investing (if we’re going to go theological on this, I guess Warren Buffett would then be one of the prophets).

But I digress. This is a stock owned by both Dreman and Brandes, and it’s in the healthcare sector somehow. Here’s the relevant teaser copy:

“This company is in the recession-proof healthcare industry. The stock has amazing fundamentals. They are rocksolid with a 36.5% profit margin, 40.90% operating margin and no debt! Not many people know about this company… but the players on Wall Street surely do. In fact, in the last quarter, some of Wall Street’s best fund managers have taken a position in this company, including David Dreman and Charles Brandes. At $14 per share, I expect we’ll see this company appreciate 100% in the next 12 months. In the next three years, I wouldn’t be surprised to see the stock climb to $45 per share. In the meantime, the stock pays a 13% dividend. That means you get phenomenal income, paid four times per year, while you wait for the stock to double or triple.”

I’m going to have to ask you to sit down, because you’re going to be shocked to hear this.

Ready?

OK, the shares have actually fallen from where they were when Sosnowski penned this piece (or had it penned). The dividend is now closer to 15%, and Dreman and Brandes, assuming they still own the shares for their investors, are probably feeling some twinges of regret about those holdings.

Hmm? Oh, yes, you’d like the name of the company! Of course …

Biovail (BVF)

I’ll have to be honest and tell you that it’s possible I’m wrong on this one — the teaser is at least a few months old, so I don’t know for sure what time frame she’s dealing with, but Dreman, Brandes, and debt-free high-yield healthcare stock all fit this one to a “T”, as does the stated yield of 13%, assuming she pulled the numbers when the stock was around $12 in May (the dividend is $1.50 a yearm the shares are down to about $10 as I type this).

But unless she’s cherry picking one quarter, those profit and operating margins don’t fit, and I didn’t check every quarter’s filings to see if she could have forced them to fit, though it’s probably possible — Biovail has never put up numbers quite that high for 12 months, at least not in the recent history I checked. So there’s some potential that this could be another company, perhaps one of the higher-yielding healthcare REITs like MPW or the like.

Still, I thought I’d bring this company up because it’s a potential match, even a “prety good” match, and it’s a fascinating story for you to dig into if you like. Biovail is everyone’s favorite high-yield pharma stock, and it’s also a favorite among folks who enjoy a nice stock market soap opera — the founder has been trying to wrest control of the company from the board but failing to make much progress, they’ve had some sales declines recently but are keeping investors happy by keeping up the steady high dividend, and they do have a few successful drugs — Wellbutrin being the most well-known and the biggest seller.

I don’t know much about Biovail other than what I’ve read from time to time as the fights have continued and the shares have fallen, but it’s worth a look-see if you like a twisted tale, or a high dividend, or drug stocks, or you want to take a chance on a “value” play that is owned by the funds of Dreman and Brandes. Even if they have lost money on this pick. In general, the company has made it’s name (and its past profits) on a bunch of “upgrades” that they applied to existing drugs to extend their patent life or marketability, but that well is running dry and they’re now trying to develop their own higher-margin chemical compounds. I have no idea whether or not they’ll be successful — I know my limits, and they kick in just about as soon as I start seeing a lot of technical names for chemical compounds and reading the results of drug trials.

If you want to dig deeper into the Biovail story, sit down with your popcorn and raisinets and check out this article from Forbes, this AP story about the founder dropping his takeover bid last week, and, my favorite, the letter challenging the CEO to a debate. I’m looking forward to seeing the screenplay, and I hope they write in some car chases.

And if you happen to have looked deeper and found a better answer for this particular teaser, feel free to share. I do so dislike not being 100% sure when I write these up, but I thought y’all might have fun with Biovail, regardless.

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6 Comments on "Free Money Stock #2 — High Yield Healthcare (Sosnowski)"

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spreadtrader
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spreadtrader
August 5, 2008 11:05 pm
“Recession proof”? “Amazing fundamentals”? Gimme a break. This stock might as well have gone through the “Great Depression”. If it wasn’t for the dividend it would have nothing going for it. What’s amazing is that even with the dividend, it is still being consistently sold. It lost over 60% of its “value” in the past two years and 80% of its “value” in 5 years. The chart doesn’t appear to be turning around anytime soon. When it does, and IF they keep paying that dividend I might be interested. But being at a loss to understand why “the players on… Read more »
Big Mo
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Big Mo
August 6, 2008 6:50 am

Happy Birthday Travis!

Bob Anderson
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Bob Anderson
August 6, 2008 12:38 pm

Biovail Corp plans to invest $600 million through 2012 on research and development. funded through equity, the company has $500 million in cash and no debt.
Investors Charles Brandes and David Dreman are still holding shares. The stock currently yields 14.2%.
Continue to hold shares of BVP according to the latest from Ann Sosnowski.

Options Trader
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August 12, 2008 1:06 am
IF you are a student of WILLIAM O NEIL who believes in following price action and volume and only buying the best companies out there with top notched fundamentals and with accelerating sales growths and EPS, you will never touch value investing with a 10 foot pole. Value investing, leave it for Warren Buffets. They have to hope for the market to come to them and prove them right, which may or may not happen in your lifetime. William O Neils goes to the already blooming businesses whose market is screaming at you with powerful strokes of price and chart… Read more »
farley 5
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farley 5
August 12, 2008 8:49 am

Except for the Naked Puts comment, I agree with Options Trader in all deference to WWP.
“The market can stay irrational longer than you can stay solvent”. John Maynard Keynes, (attributed) English economist (1883 – 1946)

Get in fromt of what is working right now. O’Neil is an expert in momentum stocks. His is another book worthy of Stock Gumshoe’s library project.

Gravity Switch
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August 12, 2008 3:22 pm
Thanks farley — I’ve been throwing some books that I like into a bookstore (run through Amazon). Link’s in the sidebar, or you can visit http://astore.amazon.com/oneguysinvest-20 If you’ve got other favorite books about investing or trading, let me know and I’ll try to add them to the list. I tend to gravitate toward fundamental investing and “big picture” books, especially those that explain basic concepts in plain language and give individual investors a fighting chance, so that’s mostly what’s there now — but I’ve also thrown in a few trading books that folks here have recommended in the past, and… Read more »
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