Author Topic: What are you buying today?  (Read 2206434 times)

stylized_fact

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Re: What are you buying today?
« Reply #520 on: April 04, 2014, 05:08:44 PM »


jwfm1985

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Re: What are you buying today?
« Reply #521 on: April 05, 2014, 02:21:01 PM »
Started a small position in Lab Corp. - LH

Ross,

Been thinking about LH - I love the industry. Question though, why LH over Quest?

thefatbaboon

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Re: What are you buying today?
« Reply #522 on: April 06, 2014, 06:59:49 AM »
LMCA, THRX

Confirmation bias endorphins kicking in! I'm stalking THRX, probably being greedy and will miss it (like i did with freaking K); but hoping to get it in the mid 20's.

My amazing charting skills suggest that it should at least dip to 26  ;D

no_free_lunch

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Re: What are you buying today?
« Reply #523 on: April 06, 2014, 07:40:23 AM »
THRX seems a bit too complicated for me.   At the high level it's an amazing story, you have Seth Klarman and GSK holding huge positions.  GSK will be paying out royalties to THRX so they know the business better than anyone.   Both parties have purchased shares at higher prices.   You also have a spinoff to potentially unlock some value.   So at that 50,000 ft level it looks great.

However, when you dig into the sales estimates for the COPD drugs they are all over the map.   Peak sales from $1B to $4B.   At $4B it's a steal and will probably double or more, it will go down to the teens at $1B.   So for someone outside of the sector it is a tough call.  I guess, in either scenario it doesn't seem likely to be a 0, maybe a 50% loss assuming something doesn't go horribly wrong with the drugs.

It seems you basically just have to trust the major holders to buy into it.  Honestly that's probably as good a thesis as any but I generally like to have a better feel for the fundamentals.   Am I missing anything?

frommi

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Re: What are you buying today?
« Reply #524 on: April 06, 2014, 08:08:11 AM »
My amazing charting skills suggest that it should at least dip to 26  ;D

How do you come to that number? I can only "see" that it has a high chance of falling further, but i don`t "see" yet how far. At 20 there is a massive support, but that doesn`t mean it drops that low.

thefatbaboon

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Re: What are you buying today?
« Reply #525 on: April 06, 2014, 09:33:03 AM »
My amazing charting skills suggest that it should at least dip to 26  ;D

How do you come to that number? I can only "see" that it has a high chance of falling further, but i don`t "see" yet how far. At 20 there is a massive support, but that doesn`t mean it drops that low.

I pulled the number out of my ass - where i find most of my best charting insights.

CorpRaider

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Re: What are you buying today?
« Reply #526 on: April 07, 2014, 06:45:25 AM »
haha!  I'm trying to get it at a valuation that based on my back of the envelope, uncle carl style analysis gives me a ~50% return to Elan's valuation of the royalty co.

Ross812

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Re: What are you buying today?
« Reply #527 on: April 07, 2014, 07:12:52 AM »
Started a small position in Lab Corp. - LH

Ross,

Been thinking about LH - I love the industry. Question though, why LH over Quest?

jwfm,

The short answer is management at LH is better than DGX. Quest and LH both grow through acquisition but Quest has proven again and again to destroy value when they acquire. Quest seems to take 1-2 years to fully digest a new lab (they have nothing to show for a couple big acquisitions) where LH does the same in 1-2 quarters. I think both companies are in a fantastic business. Together, they have the same kind of moat UPS, MSFT, or even KO possess. Long term, I think North American demographics and universal health care are going to provide a nice tail wind for both companies.
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Zorrofan

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Re: What are you buying today?
« Reply #528 on: April 07, 2014, 08:08:48 AM »
Started a small position in Lab Corp. - LH

Ross,

Been thinking about LH - I love the industry. Question though, why LH over Quest?

jwfm,

The short answer is management at LH is better than DGX. Quest and LH both grow through acquisition but Quest has proven again and again to destroy value when they acquire. Quest seems to take 1-2 years to fully digest a new lab (they have nothing to show for a couple big acquisitions) where LH does the same in 1-2 quarters. I think both companies are in a fantastic business. Together, they have the same kind of moat UPS, MSFT, or even KO possess. Long term, I think North American demographics and universal health care are going to provide a nice tail wind for both companies.

Ross,

Not that I think you are wrong, but I always look for the possible mistake in my thinking before investing. So let me go all Charlie Munger on you for a moment.  What if a company like Opko Health actually manages to come up with a diagnostic test that can be done in your doctor's office (something they are working on) based on a simple blood test?  What about the impact of government payment reductions? LH stated that this cost them over $100 million in 2013 alone? 

Looking forward to your comments as the idea does look interesting.....

cheers
Zorro

Ross812

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Re: What are you buying today?
« Reply #529 on: April 07, 2014, 10:22:29 AM »
Started a small position in Lab Corp. - LH

Ross,

Been thinking about LH - I love the industry. Question though, why LH over Quest?

jwfm,

The short answer is management at LH is better than DGX. Quest and LH both grow through acquisition but Quest has proven again and again to destroy value when they acquire. Quest seems to take 1-2 years to fully digest a new lab (they have nothing to show for a couple big acquisitions) where LH does the same in 1-2 quarters. I think both companies are in a fantastic business. Together, they have the same kind of moat UPS, MSFT, or even KO possess. Long term, I think North American demographics and universal health care are going to provide a nice tail wind for both companies.

Ross,

Not that I think you are wrong, but I always look for the possible mistake in my thinking before investing. So let me go all Charlie Munger on you for a moment.  What if a company like Opko Health actually manages to come up with a diagnostic test that can be done in your doctor's office (something they are working on) based on a simple blood test?  What about the impact of government payment reductions? LH stated that this cost them over $100 million in 2013 alone? 

Looking forward to your comments as the idea does look interesting.....

cheers
Zorro

Zorro,

I'll hit the government reductions first. The Midcare/caid acutually increased reimbursement 1% last year. LH lost money on routine standard tests that were moved onto the governments "not approved list". To give an analogy; there where 10 types of tests approved and reimbursed at $100 in 2012. In 2013, doctors ordered the same tests, LH performed the testing and sent the bill to the government. The government, in turn, decided in Q4 of 13 that 2 of the 10 tests were no longer covered and rather than reimbursing LH sent bills to individuals on medicare. (LH will have very limited success collecting these debts) The remaining 8 tests were reimbursed at $101 each.

Management stated that they will simply abandon these tests billed to medicare in the future and stated that this is a temporary problem. Once doctors start getting sued when patients suffer because they are unable to get routine and best practice testing reimbursed; the government will change course. Until then, LH will not be giving any more free testing.
 
HR 4015 passed the house on the 14th of March (this was not expected). This allows Medicare to reimburse doctors and labs at a rate greater than sustainable growth rate (SGR) in the future; meaning LH should actually pick up revenue growth from the government abandoning SGR @ 1% per year to something closer to YoY cost of care inflation - roughly 4%.

Regarding being Charlie Mungered on the moat. I tend to think of moats as being sustainable if they can be expanded while under siege. The testing business is a technology arms race at its heart and technology always gets more and more complex as it matures. Opko Health may design a great real time test that replaces an offering by LH, but what about LH's 500 other offerings, or the new relatively complex genomics testing they are rolling out? Everyone expects new technology to replace existing technology, but in most cases, there is room for both. I.E. laptops and smartphones, SSD and HDD, credit cards and mobile payment. We are taking a pretty big leap to assign risk to a technology that a company may develop that may be an acceptable replacement for a current product that may be adopted by the medical community at large.   

I learned my lesson with inverting investments too much and tearing down moats based on new technology. A few years ago, I could have bought WDC at $23 but I didn't because I was convinced SSD would replace WDC's HDDs. Looking back on it, I missed out on a 400% gain and a position in a consistently growing company with a sustainable competitive advantage as part of the data storage duopoly.
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