Up to last summer one of the hottest stocks on the exchanges was a drug company called Valeant Pharmaceuticals International. At the moment, the company is in the news because it owes $31 billion and the stock is no longer high flying. The company was a serial acquirer of drug companies, then increased the prices of the drugs and decreased research and development or the strategy was to continually acquire companies with increasing stock price. As long as the price on the stock was increasing, Wall Street allowed it to increase the debt load and sung its praises. When the government decided to cut back some of its price, the effect was a tumbling stock price which meant fewer acquisition or even second and third tier companies to acquire. The stock price has fallen from close to $300 to about $30.

David Milstead writing in the Globe and Mail wrote about two companies which have done similar strategies as Valeant but are thriving. The first one is called Gilead Sciences which invests money in research and development and has a number of drugs on patent. The company has developed a dominant franchise in the HIV treatment and through their learnings has branched out to treatment of hepatitis and other similar fields. Their patent on their best name brand drugs runs to 2030 before the generics can take their place.

The other similar company is Danaher Corporation which has bought many companies is in the industrial equipment franchise which the reputation of being one of the best managed companies. Analysts love Danaher’s success in bringing operation disciplines to grow earnings – it has acquired 71 companies in the past 5 years. Over the next year it will likely spinoff its more mature companies into one company.

Linking to dividend paying stocks, there are many high flying stocks but the big question is how well do they execute to bring value into the company. If you had invest in Valeant Phar you would have likely lost money. When you invest in other companies such as Danaher and Gilead, they will not be the highest flyer on the stock exchange but with consistency of execution they will return you capital and give you a dividend while you wait.

There are more questions than answers, till the next time – to raising questions.