A federal indictment of Teva … how Eric Fry helped subscribers bank triple-digit profits … a special event next week revealing Eric’s process for finding big winners
Lies … greed … collusion …
It was corporate malfeasance at its worst — and now the company is paying for it.
Yesterday, the U.S. Justice Department officially indicted Teva Pharmaceuticals on charges of participating in three conspiracies to fix prices.
From the Justice Department’s antitrust division:
Today’s charge reaffirms that no company is too big to be prosecuted for its role in conspiracies that led to substantially higher prices for generic drugs relied on by millions of Americans.
It’s the most high-profile case to come out of a long-term investigation into the world’s largest generic-drug maker.
But there’s another story behind yesterday’s headlines …
It’s the tale of how our macro investing specialist, Eric Fry, saw red flags with Teva long before the suspected collusion … and how he led his Speculator subscribers to 140% gains as the company fell.
Today, let’s revisit Eric’s triple-digit winner betting against Teva.
But then, more importantly, let’s look closer at the process by which Eric finds his trades.
You see, next Tuesday, September 1, Eric will be holding a special event called The Survive & Thrive Summit. At the event, he’s going to pull back the curtain on the specifics of his investment process.
To be clear, this stuff is not taught in business school, covered in your standard “Investing 101” book, or discussed on investment shows like “Mad Money.”
It’s different.
But it’s this difference that has enabled Eric to identify and recommend 41 different stocks that produced 1,000%+ gains.
You see, you can’t invest like the masses and expect outsized returns. For the big winners, you have to be different. And that’s Eric’s style.
So, today, in anticipation of next week’s event, let’s revisit Eric’s Teva trade, and then provide a sneak-peek at his winning process.
Let’s jump in …
***“This is an organized effort to conspire and fix prices — a highly illegal violation of antitrust laws.”
Connecticut Attorney General William Tong made that comment back in May 2019. He claimed 20 drug companies conspired to either prevent prices from dropping, or even worked together to raise them.
Teva was at the center of the storm.
“Apparently unsatisfied with the status quo of ‘fair share’ and the mere avoidance of price erosion, Teva and its co-conspirators embarked on one of the most egregious and damaging price-fixing conspiracies in the history of the United States,” the complaint said.
A few examples of these price increases:
Between 2013 and 2014, the cost of a bottle of the antibiotic doxycycline exploded 8,281% from $20 to more than $1800 …
A bottle of asthma medication, albuterol sulfate, shot up more than 4,000%, from $11 to $434 …
And Pravastatin, a popular cholesterol drug, rose more than 500%, from $27 a bottle to $196 …
Charges allege that the defendants knew their conduct was unlawful. Therefore, they usually decided to communicate in person or by phone “in an attempt to avoid creating a written record of their illegal conduct.”
***Long before this collusion news hit headlines, Eric Fry was seeing red flags with Teva
For any newer Digest readers, Eric is probably the most successful investor you’ve never heard of.
In 2016, some of the world’s best money managers and stock pickers, including Eric, participated in an annual investing contest. Leon Cooperman, David Einhorn, Bill Ackman …
Eric beat them all. He posted a one-year gain of 150%.
Now, it was around two years ago that Eric wrote about the challenges facing Teva. And in retrospect, in light of these challenges, it makes more sense why Teva was desperate for a way to juice revenues.
Eric noted falling generic drug prices, the looming loss of a major revenue stream as Teva’s multiple sclerosis drug faced new generic competition, Amazon’s entrance into the pharmaceutical business, and Teva’s debt load.
Here’s how he described that last challenge:
Teva’s debt load is nothing short of titanic. In absolute terms, the company’s net debt totals $29 billion — up from just $3 billion three years ago.
For added perspective, this mountain of debt totals more than nine times the company’s annual gross earnings (EBITDA). That’s a very big number. In fact, it is so big, it could be life-threatening.
So, Teva had suddenly been saddled with massive new debt. And what was the state of its revenue position to handle that debt?
Here again, things looked bad. The reason was the entrance of Amazon into the pharmaceutical market.
Here’s how Eric explained it:
Now that Amazon has decided to make a push into the pharmaceutical business, we should expect the company to do what it usually does: lower prices, improve the customer experience, grab market share and undermine the profitability of established competitors …
“Alexa, please refill my generic drug prescriptions,” is a phrase that could become very costly to a company like Teva down the road.
***Given the challenges facing Teva, Eric recommended subscribers bet against the company
Eric originally made this call two summers ago, but re-introduced the trade at InvestorPlace in the fall of 2018.
The trade bounced around for about a month. But in early November, Teva began falling … fast.
Now, to save time in this Digest, let’s just hit the highlights.
Teva’s decline wasn’t a straight shot. So, as veteran investors do, Eric suggested selling portions of the overall position in order to lock in gains at different points in time.
Selling in tranches like this is a powerful way to avoid the sellers’ remorse that comes with either watching your profits slip away because you sold too late, or realizing you left big profits on the table because you sold too early.
Eric recommended four different quarter-position sales on the Teva trade.
Here’s how it looked …
Here’s the trade by the numbers:
- First tranche — 74.53%
- Second tranche — 134.20%
- Third tranche — 161.79%
- Fourth tranche — 190.09%
Blended, that’s a total return of 140%.
***So, what’s behind Eric’s selection process?
To begin answering, let’s go straight to Eric.
From his Smart Money update on Tuesday:
I find that most investors — even Ivy Leaguers — are taught all the wrong lessons about trading.
Ninety-nine percent of investors think there are only two ways of making money in the market: either studying the fundamentals using stock analysis techniques that date back 80 years … or looking for a special signal that tells you “this stock has to go up.”
The problem with both of these approaches is that they rely on information that everyone already knows.
If a “head and shoulders” pattern appears in a stock chart, guess what? Everyone can see that.
Same thing with fundamentals. Everyone already knows Apple Inc. (AAPL) and Amazon.com Inc. (AMZN) have great fundamentals.
That’s why you can’t make 10X your money with those companies right now.
So, what should an investor look for instead? What’s Eric’s “special sauce,” so to speak?
He goes on to write how he looks for a stock that’s in a particular kind of situation …
… then I use a “flaw” in the market that allows me to see when three elements — I call them my three extremes — come together in a single stock.
These are trades … speculations … that appear way out on the extremes of the market.
Delving into the “flaw” Eric references would take up too much space in today’s Digest. But those details are exactly what Eric will be discussing next Tuesday at The Survive & Thrive Summit. It’s a free event. You just need to register ahead of time (you can click here to do that right now).
In addition to discussing his investment methodology, Eric will also announce a huge bet he’s making today that’s directly opposed to the mainstream investing establishment.
This perspective is likely to catch many investors off-guard. But if it turns out like his bet against Teva, we’ll be looking for triple-digit gains.
To join us next week and get all those details, just click here. Hope to see you there.
Have a good evening,
Jeff Remsburg
