Less than a point off its 52-week low, Cramer said shares of MedcoHealth Solutions are a “steal at these levels.”
The health-care stock is down nearly 29 percent year-to-date and trading at 10.5 times next year’s earnings, even though it has a long-term growth rate of nearly 17 percent. That’s cheap in Cramer’s book. When the pharmacy-benefit manager regains strength, he said, growth managers could pay at least 17 times earnings for shares of MHS. For that reason, he thinks this is a $67 stock masquerading as a $45 stock.
While the rest of the market remains unimpressed, Cramer said there are plenty of reasons to like Medco. Like all pharmacy-benefit managers, it administers prescription drug plans using clinical expertise to get the best medicine for the lowest price. It’s the “ultimate” way to keep health-care costs down, Cramer said, and Medco takes a cut of the savings to turn a “juicy and consistent” profit.
Medco also makes money when drugs lose their patent protection because its margins on generics are much higher than its margins on branded drugs. There are $90 billion worth of branded drugs going off patent between 2010 and 2014, which means dollar signs for the Franklin Lakes, N.J.-based business.
Some on Wall Street are concerned about the competition causing increased pricing pressure and worry Medco could lose contracts when they come up for renewal, even though it has a 99% retention rate and offers top-of-the-line proprietary services. Cramer has refuted these fears, but said money managers are selling first and asking questions later.
To get the real story about Medco’s future, Cramer spoke with CEO David Snow on Monday’s “Mad Money.” Watch the video to see the full interview.
When this story published, Cramer's charitable trust owned MedcoHealth Solutions.
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