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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (33618)	2/22/2009 6:28:54 PM
From: Dale Baker	3 Recommendations Read Replies (1) \| Respond to of 79165

Yes, nothing seems to be working these days. My formulas seem to be irrelevant. Most of the time in our investing careers, market action in specific stocks has eventually corresponded with fundamentals, one way or another. For now, macro factors and sheer market sentiment have swamped value calculations. So investors can either step aside until the macro climate calms down, or use the value tools we know to buy the "right" stocks and wait for the markets to calm down and value them again. I suspect most of us here are doing the latter to some degree, to our collective frustration.

To: Paul Senior who wrote (33618)	2/23/2009 1:05:52 AM
From: Spekulatius	Read Replies (1) \| Respond to of 79165

NVS - my old pharma favorite. Extremely solid balance sheet and above average management (IMO). Is it a value? PE is around 11. Mid single digit sales growth projected in their forecast. Not too bad. They do 40% of heir revenues in non- mainstream pharma business (vaccines, generics, consumer healthcare). The above metrics do make for a decent but not a great value, IMO. Pipeline looks OK but not great. Their blockbuster Diovan is going to expire some time down the road, that is going to be a substantial setback. Macro environment (yes I do macro) dos not look great. Headwinds on pricing are increasing and it is likely (IMO) to get worse. Competitors to compare to are GSK and SNY (SNY probably the closest proxy) The question for me is why buy pharma at all unless it is very cheap. I can buy consumer products companies without LT macro headwinds for similar PE than NVS (UL, NSRGY, PG , PM Metc.) . I also can buy medical device companies like SYK for a slightly higher PE and those have way better growth. I can buy a pharma/device hybrid like JNJ for a 12 PE. So there are many opportunities to invest in better (IMO) business with less LT headwinds right now available. So I'd say that NVS is a decent but not a great value here.

To: Paul Senior who wrote (33618)	2/23/2009 11:26:09 PM
From: Jurgis Bekepuris	Read Replies (2) \| Respond to of 79165

Paul, Let me take a swing at this. NVS. My model shows expected 14% annual return. Not great in this environment. There are lots of stocks of strong-long term performer companies with expected returns of at least 17% (MMM, NKE, GSK, JNJ, PEP, CSCO, MSFT). Now, this does not take into account pharma pipeline, about which I don't know squat. You'd have to ask Oblomov. ;) Let's look another way. ROE is about 17%, which is low for pharmas. ROIC is very similar, since cash almost cancels out debt. Earnings/EV = 9%, which is again nothing to be excited about. JNJ's earn/EV = 8.7%, but its ROE is much higher. So, I'd go with JNJ and not think a lot. Now, to decide whether to buy JNJ or MSFT or PEP or CSCO or NKE or MMM is quite another question. Probably impossible to choose quantitatively. ;) P.S. I did not read the following posts before writing this reply, so my analysis similarity (or difference) to other analyses just means that value investors think alike (or differently). ;)