Dear Mr. Berko: In the summer of 2008, when the stock market was tanking, I had $1,500 to risk and bought 50 shares of Actavis PLC at $21. Now my husband is pressuring me hard to sell. He wants me to invest the money in another issue with the same growth potential. We discuss this, sometimes heatedly, several times a week. I'd appreciate your recommendation.
- ST, Moline, Ill.
Dear ST: Your $1,050 investment in Actavis grew to $15,000 in 7 years. How swell to be a lucky lady. If you follow your husband's advice and purchase another stock with the same growth potential, your $15,000 would grow to $105,000. The key word here is "if." And "if a frog had wings, it wouldn't bump its butt on the ground." I think your husband's jealous of your success. Ask him to find another issue with the same potential, and when he, does sell half your Actavis and let him invest the proceeds. My dad used to say that divorce is bounty from the mutiny. So you must decide if it's worth $7,500 to save a marriage.
Some say that the Lord invented whiskey so the Irish couldn't control the world. And Actavis PLC (ACT-$299), a global pharmaceutical, home ported in Ireland, has grown revenues from $2.5 billion in 2008 to about $15.3 billion this year as earnings improved from $1.89 to $16.00 per share. And a good portion of that growth derives from a brilliant Irish acquisition strategy. After all: "fee-fi-fo-fum" who can resist the charms of an Irishman? This integrated, global, specialty pharmaceutical company designs, manufactures, markets and distributes more than 750 generic, branded generic, brand name, biosimilars, over-the-counter products and pharmaceuticals in 60 countries. And since you bought ACT, those Irishers have been busy acquiring Arrow Pharmaceutical, Watson Pharmaceuticals, Specifar, Warner Chilcott, Forest Labs, and in May, the lads bought Allergan. Allergan (well-known for Botox) is also a leader in ophthalmics, dermatology, neuroscience drugs, urologics and cosmetics. Allergan will increase ACT's revenues to $24.5 billion in 2016 and, accordingly, should accelerate ACT earnings to $22.25 per share next year. The Allergan deal has an impressive and fecund drug pipeline that includes new therapeutics for Botox and sustained-release products for retina diseases. That's cool beans! While the merger has Wall Street's blessing, some wonder if the boys from Dublin are overextending themselves with four large acquisitions, Watson, Forrest, Warner and Allergan, since 2011. However, management is mindful that they must cautiously measure their steps for a few years. The synergy capture from Allergan will be a key bottom-line support in the short term; however, trimming various costs over the long term to continue generating double-digit profit growth may be counterproductive. Management has purposefully stalled its acquisition binge to synchronize and harmonize its many recently acquired moving parts. In the last few years, ACT has managed to increase profit margins from 13 percent to 28 percent and believes it can earn net profit margins of 34 percent by 2018. That's impressive!
An analyst I know at Vanguard, (Vanguard owns 21 million shares) is very impressed with the company's research in generic biosimilars. These biologic drugs are at the cutting edge of modern medicine. Treatments run into multiples of tens of thousands of dollars and ACT has a strong industry partnership with Amgen for developing biosimilars. These drugs are not yet available in the U.S., and there's a race between biotechs to have their biosimilars approved, all of which face stringent manufacturing, regulatory and marketing hurdles in the U.S. This is currently a $10 billion global market that's growing like wild fire. And ACT's partnership with Amgen includes biosimilar versions of Avastin, Erbitux, Herceptin and Rituxan.
Argus, S&P Capital IQ, Goldman Sachs, Reuters, UBS and Morningstar are some of the institutions that have a buy recommendation on ACT. Millions of shares are held by mutual funds such as Vanguard, Wellington, Fidelity, T. Rowe Price, BlackRock and Legg Mason. John Paulson, the hedge fund guru, who made billions in the sub-prime mortgage fiasco, owns over 5 million shares. These pros believe ACT will trade significantly higher in a few years. And I agree.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Tue, Jul 14, 2015
