Monetizing Price Discrepancies in Health Care Equities: a Wall Street Transcript Interview with Paul Nouri, Managing Director and Portfolio Manager for the Noble Equity Fund

Wall Street Transcript

67 WALL STREET, New York - September 12, 2012 - The Wall Street Transcript has just published its Investing in Technology and Other Strategies Report offering a timely review to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Technology - Bottom-Up Investing - Price Discrepancies - Alternative Investing - Small-Cap Investing

Companies include: Community Health Systems, Inc. (CYH), Enzo Biochem Inc. (ENZ), Trinity Biotech plc (TRIB) and many others.

In the following excerpt from the Investing in Technology and Other Strategies Report, a portfolio manager discusses his top picks in the healthcare sector for investors:

TWST: Please tell us about one of your favorite investment ideas or top holdings. Why are they a good fit for the fund?

Mr. Nouri: A favorite of the fund since we started has been Community Health (CYH). It's a hospital name. We've liked the hospital space from the time we started the fund. It's been in and out of favor over the past few years. Now, it's a little more out of favor. I think people have realistic concerns that there will be pressures on reimbursement going forward, but I think what they're failing to see in the bigger picture are two really important factors. The Affordable Care Act was upheld by the Supreme Court this summer, which is going to expand the number of people with insurance, whether it's Medicaid or any other type of insurance, because everyone is going to be required to be insured in 2014. So that just opens up the pool of customers by 5% to 10% in one year.

And then beyond that, like I mentioned before, more people are retiring every year, and the people that are retiring use health care more than anyone else and need high-acuity procedures, which are done at the hospitals.

What we like about Community in particular is that they tend to focus on nonurban hospitals, so in smaller towns, where there's not much competition, and so they have pretty good leverage with the insurers when they're negotiating a price.

Also, they've been one of the more successful and aggressive consolidators in the space, and at the same time, have been an active buyer of their own shares. Additionally, when the stock was down toward the end of last year, executives spent millions of dollars to purchase stock they already had a lot of. Nothing shows management has confidence in its strategy like spending its own money to buy company stock.

TWST: Do you have any other examples to share?

Mr. Nouri: One other name we like is Enzo Biochem (ENZ). This one is on the smaller side. They have two primary businesses, clinical lab and life sciences. We think that the sum of the parts is much greater than the company as a whole is being valued at right now.

If you look at the clinical lab, just over the past three years, they've had a 15% annual growth rate each year in the New York market, which is the most lucrative market in the clinical lab business. I think the lab on its own is worth more than the company as a whole is trading at right now.

The life sciences business has pulled back a bit this year because of budgetary constraints in Europe, but new product introductions should have growth resuming next year. And between new product introductions and the restructuring that the company has done to bring costs down, I think they should be cash flow positive this coming year, and then I think that will be a significant catalyst for the stock.

TWST: Are there any other investment themes or industry trends you're following today?

For more from 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.

View Comments