Four Reasons Why Investors Are Wrong on IMS Health
Truly great opportunities in stocks that everyone hates and no one wants to own.
Contrarian investing is very difficult, as it often requires one to be on the lonely side of the ledger, watching as truly great opportunities are presented in stocks that everyone hates and no one wants to own.
IMS Health (RX) collects prescription data from transactions at pharmacies all over the world. It aggregates, analyzes, combines it with other databases, and sells it to pharmaceutical companies.
For instance, from a script filled at pharmacy in combination with other sources, RX would collect drug, dosage, doctor name, doctor's specialty, zip code, illness, and so on. (Patients' names are anonymized before RX receives them.) Pharmaceutical companies use this data to gain market intelligence on what's taking place in the industry globally and to determine compensation for their sales force.
RX collects data from over 100,000 locations, globally (key word: globally), which -- together with its tremendous intellectual property developed over the last 50 years -- are sources of significant competitive advantage.
RX drove most of its competitors out of business, and new ones are hesitant to enter as they'd likely suffer the fate of RX's former competitors. Investors don't like RX stock -- to put it mildly.
Here are some of the reasons why -- and why they're wrong:
1. Political uncertainty in the healthcare industry
Even if US healthcare turns into Obama social care, RX is well equipped to operate in this environment. Almost two-thirds of RX's revenue comes from outside of the US, a lot of it in the countries where health care is run by government. As a side note, I do believe that, due to significant budget deficits, Obama will fail to achieve his ambitious health care plan in the US.
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