As the stock market continues higher, it’s becoming harder and harder to find new companies to buy at prices I consider favorable. But every now and then a stock jumps off the screen as an opportunity you just can’t pass up! My most recent addition to growth-oriented portfolios is a company called Catamaran. They offer a slew of services in Pharmacy Benefit Management (PBM) providing solutions to everyone from doctors to pharmacies, employers that offer health plans, insurance companies and lastly the patients themselves.
Management expects revenue and earnings to continue to grow at over 30% over the next 3+ years as the healthcare system evolves and they continue to gain market share. What makes Catamaran stand apart is their technology. They started as a technology provider to pharmacies and drug distributors so their systems are considered top-of-the-line while often coming in at lower prices than most of their bigger, slower competitors on the national level. They’ve since been able to expand services to cover the full spectrum. The days of handing the pharmacist a piece of paper with illegible “doctor scribble” are gone.
I’ve had Catamaran on my “shopping list” for close to a year as a company that stands to benefit from the aging baby boomers and changing healthcare system compliments of Obamacare. I just recently pulled the trigger though after the stock took a 15% slide from its high after reporting earnings in May. When dealing with high-growth, high multiple companies, it’s important to be patient and not to overpay for that high rate of growth.
Catamaran is a great example of what I look for in a growing company. The key is that they’re in a line of work that is seeing a structural boom because of favorable demographics so it’s worthwhile for them to reinvest earnings in the business to fuel future growth. They’re also paying down debt from recent acquisitions instead of getting caught up in this whole “return cash to shareholders craze” that so many growth companies are participating in. As an investor, I’m investing in the stock of your company because I like your business model and think you can use the capital more effectively than I can by having it sit in a bank account. (side note: I’m aware that when you purchase stock on the secondary market you don’t directly give a company your money, but theoretically speaking…) This should generate a higher rate of return for me, not to mention be more beneficial and productive to society. Why would I want you to turn around and return the cash to me? If I’m looking for an investment to generate cash flow, I’ll invest in a bond or a mature company with a consistent track record of paying dividends.
When a company reaches the point that it’s more beneficial to return cash to investors, it’s a clear sign growth is slowing dramatically because they can’t find new opportunities to invest/expand. For this reason, I’ve actually been considering switching Apple from growth-oriented portfolios to income-oriented! Fundamentally speaking, the company is in great shape and they’re sporting a 2.8% yield. The problem is that as growth slows, you’re just not going to see the same appreciation in the stock that we’ve seen over the last decade.
Catamaran (CTRX) – 1 year
I also picked up a position in Allergan after its recent drop as well. They’re a maker of multiple pharmaceuticals, medical devices and OTC products. Their most well-known product is BOTOX, which interestingly enough, has far more applications than just the cosmetic use that it’s so commonly known for. It’s also used to relieve various muscle issues and prevent headaches and chronic migraines.
Allergan (AGN) – 1 year
Nick