Which Tobacco Company Has the Best Brand Equity? An Expert Portfolio Manager Shares His Stock Pick with Large International Growth Prospects, Brand Loyalty and Strong Brand Equity

Wall Street Transcript



Companies include: Valeant Pharmaceuticals Intern (VRX), Philip Morris International, I (PM), Schlumberger Limited (SLB), Halliburton Company (HAL), Baker Hughes Inc. (BHI) and many more.


TWST: Would you give us an example of what you consider an attractive stock pick today?

Mr. Dhingra: One of the companies that we have held in our portfolios for some time, and we continue to hold, is a company based in Canada, Valeant Pharmaceuticals (VRX). Valeant Pharmaceuticals is a company that's unlike any other pharmaceutical company. It is, to some extent, a financial engineering and private equity-type of company masquerading as a pharmaceutical company.

Traditionally, people have thought of pharmaceutical companies as those that invest billions of dollars in R&D with the hope of coming up with blockbuster drugs that they can then sell at a high price to mint money. Mike Pearson, the CEO of Valeant, came up with a completely different insight. He realized that the productivity of R&D dollars in the pharmaceutical industry had declined consistently for quite a long period of time. So he set about designing a company that spends very little on R&D, but instead focuses on buying existing products that were developed by other pharmaceuticals. He then cuts costs and takes advantage of tax laws to minimize the tax burden, and in this process generates extraordinary income from the same assets that a traditional pharmaceutical company could not.

Valeant is headquartered in Canada, which means that it does not face the same income repatriation restrictions that U.S. companies face. It has domiciled its intellectual property in locations that allow it to keep its tax burden minimal. So when you compare this company to other pharmaceuticals, you see that instead of spending 15% of the revenue on R&D the way a traditional pharmaceutical does, Valeant spends hardly 3% on R&D, so that saving goes directly to the bottom line. On top of that, the company...



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