Kate Stalter: I’m speaking with Ramesh Gulati of Gulati Asset Management. Ramesh, welcome to Daily Guru. I understand that you have some thoughts today on some health-care sector names to discuss.
Ramesh Gulati: Just before I start, a quick disclosure. Gulati Asset Management and its clients may be long or short in any of the names that are talked about in this article. Please don’t make any decisions solely on this article. Please consult your financial advisory before you do anything like that.
Yes, I did look into the health-care area. I find it really, again, comes back to demographics, where we have an aging population in this country. As you know, the 76 million baby boomers have really shaped the business universe over their lifetime.
It’s like, if you want to see a hamster that’s eaten by a snake. Where this bulge is moving through, it really affects everything. Everything from baby furniture when they were first born, to car sales when they became of age. Now it’s going to be affecting the health-care industry, because the baby boomers are starting to retire, and they don’t want to look or feel old.
So, as they’ve known throughout their lifetimes, they will be doing anything and everything they can to both look and feel young. So, health care is an area that I see in the years to come will be doing very well.
One in particular…that might be a little preemptive, but I find it’s a very undervalued stock, and it’s in the area of nursing skilled care: It’s a company by the name of Five Star (FVE), and they own and operate senior living facilities. They have about 245 communities throughout the country.
I found this company a while back, and I actually can’t believe that it’s trading so cheaply. It’s got a P/E right now of 2.22. So, it’s only trading at really two times their earnings right now, and they have amazing free cash flow.
And also, if you look at it from a book-value standpoint, they’re actually trading at 50% of their book value right now. So if you were to liquidate their assets, it’s actually double what they’re trading for right now.
They just recently got a new $150 million line of credit, and that line of credit, the interest rate they’re paying is about 300 basis points less than some of their top competitors. So, it really shows the financial stability of this company.