Every month we publish Mike’s Buy List for our DSR members. Get our best US and Canadian dividend stock ideas. On the first Friday of every month you will receive our top 10 investment ideas for growth and top 10 retirement (return over 4% +).

Today we are going to discuss two ideas in the list: ViacomCBS (VIAC) and AbbVie (ABBV).

Growth perspective: ViacomCBS (VIAC)

Source: ViacomCBS website

Business model

ViacomCBS is the combination of CBS and Viacom that has created a global media conglomerate. CBS television facilities include the CBS television network, 28 local television stations and 50% of CW, a joint venture between CBS and Time Warner. The company also owns Showtime and Simon & Schuster. Viacom owns several leading cable network properties including Nickelodeon, MTV, BET, Comedy Central, VH1, CMT and Paramount. Because of these brands, Viacom has also built several online properties. Viacom’s Paramount Pictures produces original films and has a library of 2,500 films.

What’s the matter

Not so long ago, the stock lost 50% of its value in 5 days. This is crazy, isn’t it? It all started when VIAC announced a stock offering into new Class B common shares and mandatory convertible preferred shares. The arrival of 20 million new shares was the first spark of a significant sell-off. We think this was a smart way to take advantage of a high rating to support spending on the new streaming business. The company’s future depends on its ability to generate content and attract customers to its streaming platforms.

The stock then continued to fall when Archegos Capital (a hedge fund) was forced to sell more than $ 20 billion worth of shares on Friday due to a margin call. VIAC lost 50% of its value in one week. It’s an interesting speculative game, but be careful. The company has a dividend safety rating of 2 as it has only increased its payout once in the past 5 years. However, the dividend is safe with low payout ratios. Management prefers to focus on growth (integrating the merger + massive investment in streaming) which isn’t necessarily a bad thing. After this decline, the company is now trading at a P / E ratio of 12. Not bad in an “overvalued market” and this time worth a look.

Investment thesis

Merging the two companies was a good idea. Content creation is expensive (the company spends $ 3 billion a year on it) and limits new players to this playground. VIAC now has a strong broadcast network that reaches over 100 million American households. The company offers advertisers popular and unique channels and sports broadcast rights. Previously, the content was licensed to other streamers such as Netflix. However, this may change in the future as VIAC is working on combining Paramount and CBS All Access into its own streaming service. Are you late to dance? Will advertisers regain strength after the economic blockade? How do the fusion synergies come about? There is a lot of uncertainty surrounding VIAC (do your own due diligence) but we believe this has great potential.

Possible risks

Initially, CBS and Viacom picked an inopportune time to consume their merger. As they are in the middle of their integration, the pandemic is forcing people to stay at home. As TV time goes up, advertising budgets have gone down. Many industries have no reason to advertise during the lockdown (movies, fast food, cars, etc.). If the Covid-19 outbreak is not controlled, major sporting events will remain uncertain. This will have an impact on VIAC’s bottom line if it doesn’t borrow substantial funds for the merger until 2019. The company may be entering the streaming service party a little late. It used to license its content, but now it seems like they wanted to become another player in this growing industry.

Retirement perspective: AbbVie (ABBV)

Source: AbbVie Instagram

Business model

AbbVie is a pharmaceutical company with strong exposure to the immunology and oncology markets. The company’s top drug, Humira, accounts for more than half of the company’s current bottom line. With the Humira patent imminent, the company is looking to other drugs like Imbruvica and Venclexta to become more important growth vectors. The company was spun off from Abbott in early 2013. The recently announced acquisition of Allergan will add several new drugs for aesthetics and women’s health. A legal department with strong expertise in patents and trademarks will also be added.

What’s the matter

There wasn’t much to say about AbbVie this month. Sometimes being a dividend growth investor isn’t that exciting!

March 30ththThe FDA accepted AbbVie’s new drug application for Atogepant. The application is aimed at the preventive treatment of migraine headaches.

ABBV is in talks to sell a $ 5 billion portfolio of women’s medicines that was acquired last year through the Allergan purchase, according to Reuters. AbbVie is working with Morgan Stanley on an auction process that the article says has attracted the interest of private equity firms like CVC Capital Partners.

Investment thesis

ABBV’s strength lies in Humira, a tumor necrosis factor blocker that reduces the effects of an inflammatory substance in the body. Humira accounts for about 50% of ABBV’s sales and even more of its profits. The company is currently enjoying the final several years of Humira’s various patents around the world. New immunological drugs like Skyrizi and Rinvoq could replace much of Humira’s sales slowdown. ABBV’s growth also lies in its new cancer drug Imbruvica. We are also seeing promising growth in drugs for psoriasis and rheumatoid arthritis. The idea behind the Allergan purchase was largely to diversify ABBV’s revenue streams and find smarter ways to expand its patents. AGN’s legal department, like ABBV’s, is known for its “creativity”. Getting a botox brand out was very smart. The latest dividend increase confirms our bullish thesis.

Possible risks

As the drama about Humira’s patent expiry (2023 for the US) shows, the pharmaceutical industry is all about patents and competition. Why? Because it enables the winner to take advantage of billions invested in research and development. Therefore, ABBV has to deal with competitor medicines that are not related to patents. While ABBV may be a discovery away from making billions, so is any competitor. For example, Pfizer could worsen ABBV’s sales expectations. Now ABBV has to convince the market that its pipeline is worth the investment. A few more quarters should be necessary. ABBV increases leverage with the acquisition of Allergan. Both AbbVie’s Humira and Allergan’s Botox are star products that could face fierce competition going forward and impact ABBV’s bottom line.

Take some time to evaluate before buying!

I believe every investor should have all of their stocks in the ranking. Valuing your inventory using a simple but efficient metric also solves your buying and selling dilemma. You automatically identify the strong and weak companies in your portfolio. I discussed my ranking system on my YouTube channel.



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