Recent Buy – Cardinal Health $CAH

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Happy Friday!

Cardinal Health Inc $CAH

From yahoo:

Cardinal Health, Inc. operates as an integrated healthcare services and products company worldwide. The company’s Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical, over-the-counter healthcare, and consumer products to retailers, hospitals, and other healthcare providers.

It also operates nuclear pharmacies and manufacturing facilities that manufacture, prepare, and deliver radiopharmaceuticals, as well as operates direct-to-patient specialty pharmacies; offers logistics, marketing, and other services; and repackages generic pharmaceuticals and over-the-counter healthcare products. The company’s Medical segment manufactures and sources medical, surgical, and laboratory products, including cardiovascular and endovascular products; wound care products; surgical drapes, gowns, and apparel; exam and surgical gloves; fluid suction and collection systems; and incontinence, enteral feeding, urology, operating room supply, electrode and needle, and syringe and sharps disposal product lines. It also distributes medical, surgical, and laboratory products to hospitals, ambulatory surgery centers, clinical laboratories, and other healthcare providers, as well as to patients in the home; and assembles and sells sterile and non-sterile procedure kits. In addition, it offers supply chain services to healthcare providers; and post-acute care management, and transition services and software to hospitals, other healthcare providers, and payers. Cardinal Health, Inc. was founded in 1979 and is headquartered in Dublin, Ohio.

In short, $CAH is a drug wholesaler which also manufacture products and run the inventory for hospitals and clinics.

Why the buy?

$CAH dropped 20% yesterday, so I couldn’t help but picking up 20 shares at $52.xx, yielding at 2.81%. This yield is $CAH historical high.

Why the share price got dropped so much?

#1 Drug shortages – Puerto Rico, Texas, and other plants got shut down by the hurricaine and the FDA, and glass supplies problems plagued the whole drug production and distribution industry. So the hospitals, my hospital, has been operating under a very tight small inventory. Less volume, less revenue, less profit margin. Cardinal profit margin was 33% drop from the previous quarter.

This create a buying opportunity right? Once the production come back, hospital who’s been deprived of meds, will be loading on UP! So there should be a spike coming in the next 3month – 1 year. 

#2 Amazon was threatening to become a drug distributor/pharmacy – before regulations got the hold of it. Remember Apple was trying to do the samething with the Health App, it’s been 10 years, and there’s no progress. Nonetheless, the share price was never had any significant recovering since Amazon announced the entering the market and the subsequent news of withdrawal.

This should work in investors’s favor as the stock will rebound.

#3 Taxes – The company took a hit was due to the big tax bill at 41%, but this problem should subside in the coming quarters though.

Risks:

#1 This stock is increasingly volitile Beta at 1.22. It’s very good for day traders or option traders. So, we’ll continue very wild big swings

#2 Since the company did announce 1 year of declining profit and revenues. There is tough road ahead.

#3 Medicare/Medicaid might combine and single payers might come someday, and this will change the whole GAME! but the US government is super inefficient, so this problem might  not even happen during my lifetime, but it still should go toward that direction.

 

 

 

4 Comments

  1. Interesting but, some would say some more high risk then usual. I also have a very small position but I’m not thinking about adding at the moment. So far loading up in consumer staples section 🙂

  2. I own a healthy portion of CAH and am considering adding to my position now. I am there for the long term, but there will definitely be some short-term pain for investors. I like that Amazon announced there withdrawal from the industry too. Solid purchase!

    Bert

    • I think so too. As the drug shortages easing, I’m seeing my hospital stocking up on meds. We’re a long term CAH’s customer as long as I’ve been working at this hospital. There were some small structural changes, but it shouldn’t affected the volume. We’ve opened another building.

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