AmerisourceBergen: A "Must-Own" Stock

06/03/2016 8:00 am EST


Todd Shaver

Founder and Editor-in-Chief,

Our latest featured recommendation is an amazing value play that is quickly getting investor attention; indeed, Credit Suisse and Goldman Sachs recently upgraded the stock to Market Outperform, notes Todd Shaver, editor of

AmerisourceBergen (ABC) has been hammered since reporting their most recent quarterly results, when management lowered guidance for fiscal 2016 from $5.80 to $5.50. They further went on to place 2017 guidance at $5.80; a 6% decrease. 

The shortfall is traceable to a deflation in generic drug prices. In any other business, lower prices indicate a problem with weak demand. Not so in this case. It is just the unique pricing nature of the generic drug business.  

AmerisourceBergen is a master of cost control and cost reduction. But this is a short-term correctable problem. With their expertise, the next surprise will be on the upside.

The aging of America is no longer a thing of the future. The future is now. For the next 20 years, an average of 10,000 people each day will reach age 65. This age is when drug consumption starts increasing exponentially. 

The high degree of predictability makes distributors like AmerisourceBergen great defensive investments.

As a result of the pullback, the PE at 13 times 2016 earnings of $5.50 has not been this low in recent memory. The dividend yield of 1.8% is as good as a 10-year US Treasury Note.

With high growth and defensive qualities, this is a must-own stock. Within the next 12-18 months the previous 52-week $115 high is our target.

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