Valeant Pharmaceuticals Intl Inc.: If You’d Bought the Dip, You’re up

Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX) has had a great month, and it could continue to ride that wave.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Back on October 23, I’d suggested investors who could stomach volatility buy a small position in Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX). Shares were trading at ~$15, and investors were questioning if shares would inevitably go lower.

And they did go lower, dipping another 4.5%. But as I always say, trying to time a bottom can be very difficult. So, even if you’d bought on the 23rd, and you’re holding today, you’re up 37%. And what should excite investors is that things continue to move in the right direction, making it possible for Valeant to continue experiencing similar growth.

In the beginning of November, Valeant released its third-quarter results, and they were, as expected, mixed. Revenue was down by 10% year over year to US$2.2 billion. This is because its Branded Rx and U.S. diversified products divisions were both down. However, Bausch + Lomb/International was up by 1% to US$1.254 billion — a good sign, in my book.

That drop in revenue was predictable. Valeant has been selling divisions left and right in an effort to pay down its debt. But by removing divisions, it loses products, which means it no longer can generate revenue on them.

What has been sending the shares up is that Valeant brought in US$1.3 billion in net income in the quarter compared to a loss of US$1.22 billion last year. This was thanks to a US$1.4 billion tax gain, but it was, nevertheless, a win for the company.

Soon after the quarter ended, Valeant announced that it would be returning the drug Addyi to its creators. This news is important, because it demonstrates the end of Valeant’s old ways. Back in 2015, Valeant bought Addyi, marketed as the female Viagra, for nearly US$1 billion. It never got off the ground, though, and completely floundered. Returning it means Valeant can focus its energy on other, more important products.

But here’s what really should have investors happy and excited:

The company expected to reduce its debt by US$5 billion by February 2018. As of the end of Q3, it has paid back US$6 billion, with a few months to go until its self-assigned deadline. And we can see the debt-payback strategy working; Valeant spent US$459 million in interest this quarter — down over 2% from last year.

However, what the company gained by selling those divisions and paying off its debt is time. The next major debt maturation is in 2020, when Valeant will owe US$5.8 billion. Another US$10.5 billion is due in 2022. But that’s five years from now. A lot can happen in five years.

My philosophy on Valeant hasn’t changed. It’s speculative. The company is carrying an incredible amount of debt that could really hurt the company in the coming years. However, now that the company is in a better position from a debt perspective, it can start to focus its energy on making new products.

One product the company really hopes will help is Siliq, a psoriasis drug. It is better than its competitors’ drugs and cheaper, but it comes with a black-box warning, which is the strictest possible warning. Should doctors see the benefits outweighing the risks, it could generate anywhere from US$250 to US$600 million a year in revenue.

Valeant will need that and a lot of other great products to ensure that the upcoming debt doesn’t destroy it. The risks are great, but small, speculative plays can sometimes be worth it. I say continue holding Valeant.

Should you invest $1,000 in Corus Entertainment right now?

Before you buy stock in Corus Entertainment, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Corus Entertainment wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in the companies mentioned. Tom Gardner owns shares of Valeant Pharmaceuticals. The Motley Fool owns shares of Valeant Pharmaceuticals.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

dividend growth for passive income
Stock Market

5 Cheap Canadian Stocks to Buy Right Now With $5,000

Here's why investing in these five cheap TSX stocks can help Canadians deliver outsized gains in 2025 and beyond.

Read more »

dividends grow over time
Dividend Stocks

Income Investors: These Canadian Dividend All-Stars Are Raising Payouts Again

Long-term income investors can consider these Canadian dividend all-stars that are trading at good valuations.

Read more »

ways to boost income
Stocks for Beginners

Best Canadian Stocks to Buy With $7,000 Right Now

Got $7,000 to invest in your 2025 TFSA contribution? Here are three diverse Canadian stocks to add right now.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Here’s How Many Shares of ZMI You Should Own to Get $500 in Monthly Dividends

This BMO monthly income ETF is diversified and easy to understand.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Wednesday, March 19

The U.S. Federal Reserve’s interest rate decision, press conference, and economic projections will remain on TSX investors’ radar today.

Read more »

Rocket lift off through the clouds
Tech Stocks

Plummet or Opportunity? Why This TSX Stock Could Skyrocket From Here

This TSX stock may be down for now, but don't count it out as a solid long-term growth opportunity.

Read more »

dividends can compound over time
Dividend Stocks

Tariff Risks Are Rising: Here’s How to Stay Ahead as an Investor

Are you worried about tariffs? Worry no more and protect yourself with these three stocks offering protection.

Read more »

investor looks at volatility chart
Dividend Stocks

Market Correction: 3 Canadian Stocks to Buy Before Prices Rebound

These three Canadian stocks certainly offer a lot to investors, such as stability and value, but growth is definitely in…

Read more »