Comments on IMS Health
In my earlier post, I remarked about stocks I favored. I am generally looking for stocks with wide economic moats. While I think that established blue chips with low debt will do the best in this environment, I'm also considering mid caps with economic moats and strong growth prospects - smaller caps tend to lead on the way out of recessions, but I also don't want to pick low quality stocks with high debt. One stock I forgot to mention is IMS Health (RX).
IMS Health provides global pharmaceutical sales data to the pharmaceutical industry. This helps the industry optimize salesforce effectiveness, value, safety and efficacy. Although IMS's fate is tied to the fortunes of Big Pharma, it would be very difficult for a new entrant to build a comparable database. Additionally, IMS has leveraged its expertise to provide consulting services, especially in optimizing therapy for diabetes and cancer, which are unfortunately growing markets. IMS's rich dataset gives it an advantage over other potential entrants in this field.
I think IMS's stock price has been hurt, like most of the health sector, by health reform worries. For better or worse, pharma will remain a rich industry. In addition, IMS's services will be of use even under a 'strong' version of health reform. Again, payers will up their demands that the industry prove efficacy and value, and IMS's services will still be needed. In other words, IMS has substantial intrinsic value, as evinced by its consistently high operating margins.
The firm's balance sheet is good enough. IMS has adequate coverage ratios and a substantial amount of cash on hand.
I'd characterize IMS Health as a tech firm with sole ties to the healthcare industry. I frankly hope the pharma industry becomes less profitable, which will mean cheaper drugs for all of us. However, I think that even in the worst case, the pharma industry's US business US GDP over the long haul, and it's a global industry anyway. I'd definitely buy IMS at today's price.