Pfizer Is Old News, But Valeant Isn't

By the time a portfolio gets transferred to me, I can tell where the investor is in their Cycle of Disappointment.

Step One is the investor fresh from one of the big wire houses. The kind that runs big ads on TV. These portfolios are full of well known stocks that ran out of gas years ago. Maybe they are still good companies. But good stocks? No.

I'm thinking of stocks like Cisco (CSCO) and Pfizer (PFE) and Lilly (LLY).

Maybe there are a lot of bonds in there too. That potential client did everything right, but still the returns were all wrong. The S&P 500 is up to 28 percent year to date. With old stocks and old theories that don't work, some of them are just barely ahead this year.

Step Two for many is the Do It Yourselfer. After seeing the guys in suits underperform the market, he figures 'how hard could it be?' and starts laying his own money down.

These accounts have their own look as well: I see a lot of trading for a lot of the wrong reasons. I see lots of imbalances, maybe too much money is in one stock - often an employer. Also I see a lot of people who underestimate the time and energy it takes to keep an eye on the market.

So their first visit to my office or their first phone call with me is half wealth management, half financial emotional therapy.

We talk about how markets have sectors, and how we should look for good stocks inside of hot sectors. This year, pharmaceuticals and bio-techs have been very hot.

As I checked-out a potential client's portfolio the other day I did see a few pharma's like Pfizer, Lilly, and Merck (MRK). But are these stocks really the pharma's of today anymore?

Not really.

2013 has been good to the pharmaceutical sector. In fact the pharmaceutical stocks are now my third-ranked sector in the market.

Data from Best Stocks Now App

One stock that gets high marks from my Best Stocks Now app is Valeant Pharmaceuticals (VRX).

(click to enlarge)

Data from Best Stocks Now App

What a phenomenal run its CEO has given to shareholders of the company!

VRX is a $37 billion, large-cap, multinational pharmaceutical company headquartered in Montreal, Quebec. They develop and market prescription brands, branded generics, and Over-The-Counter consumer products. Currently VRX also has several drugs in their pipeline ranging from drugs that treat epilepsy, to dermatological and ophthalmological issues.

Performance

All sounds great. But the real story lies in the performance of the stock:

Data from Best Stocks Now App

Over the last ten years VRX has delivered 24% per year to investors while the market has delivered only 5%.

Over the last five years VRX is one of the top-performing stocks in the entire market-it's delivered 69% per year to investors while the market's delivered 14%.

And over the last three years, VRX has delivered 55% per year while the market's delivered 13%. VRX has more than quadrupled the return of the market!

Now over the last 12 months, the stock is up 88%. Again it's more than tripled and even almost quadrupled the returns of the market.

And lest you accuse me of being a momentum investor-half of my formula is valuation! I don't like buying stocks that are at or near new highs. But I am a big believer in performance. I like to buy the best-performing stocks in the market. Sorry Pfizer and Lilly. Hello VRX.

Valuation

But a stock must also meet the valuation criteria that I demand. I currently have a five year target price of $205 on the share. The stock passed my valuation test.

Data from Best Stocks Now App

VRX is no Lilly, Pfizer, or Bristol Myers Squib-YET. Now I don't think VRX can continue to grow at the rate that it has over the last five years. But having said that, the analysts predict VRX will continue to grow at a rate of about 15% per year over the next five years which isn't bad. And when I stick a valuation on this company, I still get a stock price that meets my valuation criteria.

Stock Chart

The third and final component that a stock must have in order to be a Best Stock Now is a good, healthy stock chart.

(click to enlarge)

I think this works.

Data from Best Stocks Now App

It's a tall order, but VRX fits the bill. It's not a recommendation, but yet another example of a Best Stock Now that comes in at #111 out of nearly 3,800 stocks overall.

Data from Best Stocks Now App

Source: Pfizer Is Old News, But Valeant Isn't

Disclosure: I am long VRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)

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