Recent Buy – CAH

GA

The news broke that CAH wants to pay $6.1B for Medtronic (MDT) while earning guidance for 2017 and 2018 to remain flat. I wasn’t going to buy anything, but I didn’t want to pass up the 12% drop on Cardinal Health (CAH) today.

I bought CAH awhile back ~ $65 then sold it to fund my rental property. So this is a great opportunity to own CAH back.

**side note: MCK and ABC also dropped 3-5%.

I think the context of this massive selloff  is not fully studied, Wallstreet style: Sell first and ask question later. 

To understand why the massive selloff, let’s look at Cardinal deal with Medtronic. Medtronic has agreed to sell its medical supplies business to Cardinal Health for $6.1bn in cash. Medtronic will hand over 17 of its roughly 90 factories to Cardinal Health as part of the sale of the medical businesses, which generated roughly $2.4bn in sales in the last four quarters.

Wall Street sold CAH off maybe because they didn’t think the business doesn’t worth $6.1B and CAH is desperated to increase revenue.

CAH is punished also because it’s earning has been flat. Hospitals like the ones I’m working at are getting leaner. But we’ve built 2 hospitals and 2 satellite location outside of the metropolitan area within the last 7 years. We’re also building a couple more within the next 5 years. We have not slow down in term of drug expenditures.

Where CAH can go from here?

  • Well, with the combination of the medical supplies, they can increase revenue and profit over the next couple of years.
  • They can also choose to spin off the medical supply branch like GE did selling their assets.

Well, that was my quick write up. I’m going to write more when I have sometimes over the next week.

What do you think about the buy? Is the North Korea nuclear missile testing?

The news also broke today that the US is interfering with the electronic/sabotaging their tests, maybe they don’t get too cocky and stop all the escalation that leading to more war.  

 

 

3 Comments

  1. Buy on weakness. I like it. It’s amazing, as much as CAH got smashed today it’s still higher than it was in Nov. 2016. It’s on my radar now and so is GWW after its bloodbath too!

    • The market is still flying high and higher, it’s difficult to look at something that you could have bought 30% pre-election and press the “buy” button now. That’s why as of late, I just look at to see which stock still making solid earning but “miss expectation” and got punished by day traders.

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