I’ve been on a drug manufacturer kick lately, but I’ve gotten to thinking about how many disadvantages they have. While the manufacturer gets the most profit out of a successful drug, they also feel the pain when a lot of their potential drugs never get through clinical trials and have to be dropped. But what about the companies that can sell successful prescriptions or supplements, as well as more commonplace goods like snack foods or health care items? Let’s see how good some of these companies are.
Drug deals gone good
CVS Caremark Corporation (NYSE:CVS) is a bit of a titan, carrying $123 billion in trailing annual sales and sporting a $72 billion market cap. It’s also a half-decent deal considering that it’s trading at around twice its book value and around 19 times earnings. Unfortunately, these are some of the best things I can say about the company.
CVS Caremark Corporation (NYSE:CVS)’s profit margins are a bit low at 3.3%, and with low profit margins comes a rather low level of security if something fails. Particularly for a retail real estate-heavy company with high expenses, any significant hiccup could be dangerous to the company’s operations. In other news, CVS Caremark Corporation (NYSE:CVS) has come under fire for not disposing of patient information correctly, as well as 62 confirmed prescription errors between 2002 and 2005 — not quite the “Customer, Value, Service” the company emphasizes in interviews.
From a numbers perspective, I’m good with CVS Caremark Corporation (NYSE:CVS). Since it appears to have gotten its act together, I would suggest waiting on a nice dip in the price to lower than the S&P 500’s P/E and snatching up any shares you might want. As always, don’t buy just because some guy on the Internet suggested it–do you research first.
Gotta love the independent hustle
GNC Holdings Inc (NYSE:GNC) has an interesting business model, in which almost 1/5th of the US locations are franchises. GNC also operates through drugstore.com, which adds a flexible and higher-margin component to the mix. I also appreciate that GNC’s overall margins are 10.1%, which is strong for a $4.5 billion company.
However, there are cracks in the armor. Most investors aren’t fans of overpaying, so paying five times GNC Holdings Inc (NYSE:GNC)’s book value isn’t really a good idea if you like a margin of safety. The company has also come under fire twice for charging its franchises “reset fees” during corporate facelifts and signage changes, as well as for selling merchandise at company stores for lower prices than franchises were allowed to sell for. This might actually be good for investors, even though franchises probably hated it. If GNC Holdings Inc (NYSE:GNC)’s share price dips substantially, you might still want to pick up some shares to get in on the steadily rising trend of ordering supplements online.
Abundant positive efforts
Walgreen Company (NYSE:WAG) is full of solid ideas. While Walgreen restaurants didn’t work out, the initiative to place handicapped workers in distribution centers and the green initiatives Walgreen Company (NYSE:WAG) has enacted have gone all gangbusters. Walgreen has also taken things old school by going back to the “corner drugstore” days, putting its entrances facing the highest-traffic streets adjoining the stores.
However, silver linings tend to come with dark clouds. Walgreen Company (NYSE:WAG) has agreed under a court order to not alter prescription dosages for its own expanded profitability, and the company has finally allowed people on its website to review both name brand and generic prescription medicines. Trading at more than 22 times its earnings as of this writing, I suggest you give Walgreen Company (NYSE:WAG) a pass.
The Foolish bottom line
Drug dealing, even the legal variety, is a dirty business. At this time, I can’t freely and conscientiously recommend any of the above companies for standards of corporate accountability or overall cash efficacy, nor from a value perspective.
Chris Hodge has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Want Shares of a Legal Drug Dealer? originally appeared on Fool.com.
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