Stock Idea…Medicure Inc

Stock Idea…Medicure Inc

Symbol : MPH

Exchange: TSXV

Market Cap : 112 Million

Revenue : 38 Million
Three Year Revenue Growth : 110.7 %
Investment Type : Micro Cap Value/Growth

Price/Earnings : 4.7

Forward P/E : 8.6

Price/Book : 5.4

Price/Sales : 3.5

Price/Cash Flow : 4.4

Price : 7.16
Investment Stem : Cheap Small Caps Screen
                                Pender Small Cap Opportunities Fund

Medicure Inc is in the business of research, clinical development and commercialization of human therapeutics for United States hospital market. It has Marketing and distribution of Aggrastat and Manufacturing and distribution of API segments.

Medicure Inc. (Medicure) is a pharmaceutical company engaged in the research, clinical development and commercialization of human therapeutics. The Company operates in the biopharmaceutical industry segment. The Company's primary operating focus is on the sale and marketing of its acute care cardiovascular drug, AGGRASTAT (tirofiban hydrochloride) owned by its subsidiary, Medicure International, Inc. and distributed in the United States and its territories through the Company's United States subsidiary, Medicure Pharma, Inc. AGGRASTAT, a glycoprotein IIb/IIIa inhibitor (GPI), is used for the treatment of acute coronary syndrome (ACS). The Company is also engaged in the development of TARDOXAL for neurological disorders, such as Tardive Dyskinesia (TD). The Company has completed Phase IIa stage of development for TARDOXAL. The Company is also developing Transdermal AGGRASTAT, a cure for acute cardiology. Transdermal AGGRASTAT is in preclinical-stage of development.

The dreaded metrics from Morningstar…

http://quote.morningstar.ca/Quicktakes/stock/keyratios.aspx?t=MPH&region=CAN&culture=en-CA&ops=clear

The company’s website…

http://www.medicure.com/

Medicure is a pharmaceutical company focused on the development and commercialization of cardiovascular therapeutics for the U.S. market

Medicure’s vision is to become a leading cardiovascular pharmaceutical company within the U.S, offering a growing product portfolio of cardiovascular products that improve patients’ lives. We have an unwavering focus on delivering safe, efficacious and cost-effective medicines that benefit patients, healthcare providers and shareholders. Our commitment to service, partnership and integrity is what sets us apart.

Medicure was established in 1997, and spent its first decade focused on research and development. In 2008, the company began a transition to focus on its commercial pharmaceutical business. This new direction has provided significant shareholder value with the growth of AGGRASTAT sales, achieving profitability, and the pursuit of development and acquisition opportunities.

Medicure’s board and management is committed to building value for its existing shareholder base and is patiently pursuing a long-term view to establishing the Company as a leading, international pharmaceutical company - one that is distinguished by its unique fit within the contemporary market.

Medicure Inc. is based in Winnipeg, Canada and publicly traded on the Toronto Stock Exchange Venture under the symbol MPH. Its subsidiaries include Medicure International, Inc. (Barbados), which owns the U.S. rights to AGGRASTAT, as well as two U.S. corporations, Medicure USA, Inc. and Medicure Pharma, Inc., which distributes the Company’s products in the United States.

Corporate change in the Small Cap World

Corporate change in the Small Cap World

The Securities and Exchange Commission (SEC) down in the states requires that all publicly traded companies under its supervision make certain periodic and special filings. One such form is called a ‘Form 8K’, this form is filed after a material event occurs such as an acquisition, an asset sale, a bankruptcy, or a change in control of the company. As far as I know there is no corresponding form issued up here in Canada, so to find out about these types of corporate events, an investor will have to logon to www.sedar.ca  and peruse the company’s public disclosures. Maybe this is a good thing as the information is more hidden and thus has more ‘wager value’.  Narrowing this approach down to the small cap universe only adds to the value of the information as there is less competition paying attention to this sector of the market place.

These types of corporate events or ‘special situations’ can drastically alter the course of the future of a small cap company and can often serve as a catalyst launching the company in a new direction with increased profitability. One way to hunt these situations down is to follow small cap managers who follow and invest in these types of corporate events. Typically they will be small operators with a limited amount of assets under management making the information all the more valuable. The keyword in all of this is ‘change’…What has changed in the company and how will this affect the share price in the future? Management teams who are good capital allocators will often make an asset sale or a purchase that is likely to enhance shareholder value down the road. There are many different themes that can play out in this area.

This strikes at the very heart of wager value…focusing on little known or under-used information. While the majority of the investing public (your competitors) focus their attention on the mass media and the news of the day you can be doing valuable detective work under the secluded rocks of the small cap universe.

If you like to work with stock screens, this can be a valuable adjunct to researching the stocks that catch your eye from the screens you run on the market.

A Review of Stock Ideas from 2017

A Review of Stock Ideas from 2017

Last year I covered twelve stock ideas. Two of the ideas I stole from money managers I follow in the states (GIMO and DHR, both on the NYSE, although GIMO has been since bought out). Another one (GUY on the TSX) was an idea I came up with, while trying to find an investment idea in the under-valued junior gold market in Canada. The remaining nine ideas I got from a stock screen I use on the Canadian market. I want to focus on this screen for the moment and discuss my reasons for deploying it.

Cheap Canadian Small Caps Screen

Market Cap……………………49.2 million to 5.48 billion

Price / Cash Flow Ratio……….under 15.2

Return on Capital (TTM)……..over 10 percent

By screening for stocks in the smaller cap sector of the market I’m hoping to exploit market inefficiencies where the market has trouble properly valuing these companies. (wager value)

The price to cash flow ratio is a far better metric to use to value companies than the heavily followed and sometimes manipulated price to earnings ratio. (margin of safety)

Lastly, return on capital assures me that I will only be considering companies that are actually adding value to their businesses over time. (quality and value creation)

To avoid value traps I like to see revenue growth over the last few years and a strong balance sheet to help assure me that the company will be able to navigate periods where credit may be hard to obtain. I also like to see some free cash flow (I use the cash return metric to track this) and finally a strong motivated management team that holds a significant stock ownership in the company. A proven track record of capital allocation is also preferred...In addition, I also check out the price to sales ratio of the likely candidates, if it is below say 1.5 times, it is a confirming indicator of value (margin of safety) and thus makes the qualifying stocks all the more valuable.

The object of a stock screen is to give the investor ideas to conduct some research on, not to pick stocks from outright. By focusing on a pre-selected menu of stocks, the investor will be able to cut through the noise and clutter of the market and hone in on good potential investment ideas. He can also tailor the stock screen to reflect his investment approach or philosophy. 

Below is the list of the nine stocks I cherry picked from this screen last year with the dates selected and the initial return so far. Of course its still too early to make any judgements so far but its always fun to see how they are doing in the interm.

Stock	2017	Price						% return/loss
GEO	Jul-31	1.98		Jan-23	2.10		0.12	6.06
MAL	Aug-01	19.91		Jan-23	20.86		0.95	4.77
HWO	Aug-02	3.71		Jan-23	4.16		0.45	12.13
RME	Aug-07	10.41		Jan-23	12.92		2.51	24.11
TCS	Aug-24	13.15		Jan-23	18.44		5.29	40.23
SXP	Sep-23	4.46		Jan-23	4.65		0.19	4.26
MTO	Oct-01	0.77		Jan-23	0.77		0	0.00
TPK	Oct-05	6.18		Jan-23	6.72		0.54	8.74
CAL	Oct-06	7.3		Jan-23	9.4		2.1	28.77
Total								14.34

In addition, this particular stock screen could give insights into how expensive the overall market is. Back in the summer this screen yielded me 30 entries in total. This past weekend it threw off only 18 stocks and was as low as 16 just a few weeks ago. This indicates to me that this is an expensive market.

Rough Patch

Rough Patch

While the major market indexes have been surging ahead, my own investment portfolio has been lagging. I run an unbalanced portfolio with most of my money in the Brookfield limited partnerships (BIP.UN, BEP.UN, BPY.UN and BBU.UN). Other major holdings are Open Text and Stantec (OTEX, STN). I also have a significant holding (within the realm of my own portfolio) in RWM (a US ETF that shorts the Russell 2000). I put on that short last April to hedge the long positions in my portfolio. So far it has proven to be an expensive form of insurance as I’m currently down 23.40 percent on that holding.

An important point here is that sometimes the market will move against your particular approach or rotate into sectors where you are light or have no exposure. This is part of investing and I feel it’s important to realize that it will not always be clear sailing in the markets. You will have periods of under performance.

When this happens you will often find yourself being enticed by investment ideas that you might think will help bolster your returns in the short run. The market can seem to have an insidious influence on your thinking, coaxing you to buy into investments that have not been well thought out. Actually the problem doesn’t lie in the market but within your own mind. In investing, you can be your own worst enemy. That’s why I think it’s important to have an investment philosophy that will help anchor you in times of uncertainty and stress.

When investing in the stock market its important to remember that we all face an unknowable future where anything can happen. It’s human nature to pursue the safety of certainty but when investing in the markets we have to face and deal with uncertainty. The best way to deal with that is to manage your risk and think in probabilities and not to allow yourself to get bent out of shape when things don’t go your way. It’s all part of the investing experience.