Medical Products Companies, Particularly Those Aimed at Surgical Procedures, Generating Substantial Free Cash and Showing High Returns on Capital

Wall Street Transcript

67 WALL STREET, New York - May 17, 2013 - The Wall Street Transcript has just published its Investing in Health Care Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Health Care - Electronic Health Record Adoption - Biotechnology and Pharmaceutical Investing - Biotechnology and Pharmaceuticals - Biotechnology and Pharmaceutical Companies Valuation - Platform Interoperability and Data Analytics - HITECH Act Incentives - Affordable Care Act

Companies include: CR Bard Inc. (BCR), Becton, Dickinson and Company (BDX), Biogen Idec Inc. (BIIB) and many more.

In the following excerpt from the Investing in Health Care Report, an experienced portfolio manager discusses his asset allocation philosophy for investors:

TWST: What are the key macro themes or trends that are guiding your investment decisions for the fund?

Mr. Oelschlager: In this fund, a lot of times we tend to look in areas that we think are being neglected or overlooked. One area where we think that's the case right now is medical products and devices. Products that are used in surgical procedures would be an example. There has been slow growth in that area in recent years, in part because of the weak economy, but in many cases these are businesses that are consistent, that generate a lot of free cash and that have high returns on capital.

Right now, some of them are trading at free cash flow yields of around 7%, and we just think that in relation to areas like biotech that are trading at 30 times earnings - if they have earnings at all - that that's too much of a gap. So we're finding a lot of value in that area right now.

We also have broad exposure to the pharmaceutical area. Again, because valuations are reasonable, cash flow is strong, returns are high, but like in the medical products area, you just have a lack of excitement there or a lack of growth in recent years that has turned off investors to the group.

We look at the long term and say, "Well, if this stock is trading at 10 times earnings, the company doesn't even have to grow earnings for the investment to work out, or at least to perform in line." And if you get any upside whatsoever in earnings growth there, the stock should perform very well.

We also have exposure to the services area, mainly in pharmaceutical distribution. So those would be the three main areas right now in the fund

TWST: What are some of your top picks or favorite investment ideas? Would you talk a little bit about them and how they meet your investment criteria?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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