Ride the "Generic Wave" to Big Profits at this Company
I have been beating the drum about Cardinal Health (CAH) for a while now. I'm up over 21% on it in CAPS thus far and I believe that it still has a tremendous amount of upside. Why?...the “generic wave.”
The generic wave is a phenominon in the pharma market that is being created by a huge number of popular drugs whose patents are expiring between now and the year 2015. Why is this good for drug distributors like Cardinal? Because generic drugs are much, much more profitable for distributors than branded drugs are. This is as a result of the huge amount of price competition that is created by numerous generic manufacturers producing the same drug versus a single manufacturer for patent-protected drugs.
This statistic demonstrates just how profitable generics are for drug wholesalers...Only 10% of Cardinal's sales in its distribution business currently come from generic drugs, however they account for a whopping 50% of that segment's profits. Wow. Can you imagine what is going to happen to Cardinal's profits once that 10% number ramps up in the coming years?
The long-awaited rise in generic sales has already begin. Over the past two quarters CAH's year-over-year sales of generic drugs have risen by 19% and 13%. Furthermore, generic sales have grown ad a double-digit pace for five quarters in a row.
These tail-winds exist for a company that has an outstanding history of growing its dividend and returning money to shareholders. I personally am riding the wave in real life and here in CAPS.
‘Generic wave’ to drive Cardinal Health’s profitability in coming years