Are you a contrarian, but also like the company of a storied value investor on your side? Then look no further than Valeant Pharmaceuticals Intl Inc (NYSE:VRX). But instead of buying VRX stock, you’re also not alone if a bullish option to spread sounds a good deal more approachable. Let me explain.
VRX stock has been on the rebound since I last wrote about the much-maligned — and rightfully so — drug company in late March. Our no-cost bearish spread also realized a profit just shy of $1.50 at expiration back in April. K-A-A-C-H-I-N-G-G!!
Given the past success, you might think I’m doubling down on VRX stock as a bear, but you’d be wrong. The only thing I’m doubling down on is using Valeant’s options market with an equally compelling, bullish wager given new information off and on the price chart.
In a nutshell, Valeant is and has been executing strongly on its pledge to reduce its still-massive but shrinking debt with three deals. So far, the actions have chipped away at about $1.5 billion of VRX stock’s liabilities in 2017 and $3.6 billion since last year, providing the company with a stronger maturity profile. That’s good news, right?
As well, following our write-up and limited-risk, bearish profiteering, Valeant announced its first and better-than-expected profit in six quarters. Isn’t that worthy of turning a few heads, or am I alone in thinking that?
Actually, I’m not alone. Bill Miller’s Miller Value Partners sees VRX as a company worthy of investing in. The legendary Legg Mason fund manager known for his 15-year stretch of beating the market using concentrated, value and contrarian-oriented portfolio bets is long Valeant stock.
There are still risks of course with VRX stock, aside from the general investing variety.
The largest concern is likely knowing that while Valeant is executing on its promises to reduce its debt obligations, the asset sales do come with a real cost. Bottom-line, there have been lost revenues and the loss of key products in its portfolio, as well as reduced R&D for VRX stock.
Most recently and due to these necessary actions, Valeant announced its pending sale of its iNova Pharmaceuticals business, and earlier this year, Dendreon was a casualty.
Another potential risk? If you like the comfort of crowds, there are still non-believers in VRX stock. In fact, there’s even more these days. The current short interest of 15% is near its highest conviction since VRX began its long tumble from around $260 in the summer of 2015 and all the way down into the lower double digits.
But before you think, well now they’re really going for the kill, realize the short interest figure only began to balloon from about 2% to 4%, well after the bulk of Valeant’s fall and the attached red flags for VRX stock were first made public.
The point is, it’s our view the bearish increase could in fact be woefully late to the party. As well, while 15% is a relatively high level of shorts, those bets against VRX also aren’t so significantly elevated as to think Valeant is unequivocal roadkill.