Top investor Sass buys Allergan after epic plunge

Published Tue, Apr 5 201612:36 PM EDTUpdated Tue, Apr 5 20163:20 PM EDT

Hedge fund manager Martin Sass doubled down on Allergan on Tuesday, adding to shares of the specialty-pharmaceutical company for his CNBC Pro model portfolio after the stock plunged. In early trading, shares of Allergan lost nearly a fifth of their value at one point as the Treasury Department took steps to curb so-called tax inversions . Pfizer plans to buy Ireland-based Allergan to reduce its tax bill, and that deal is now in question. Sass, who oversees $7 billion in assets at M.D. Sass, a New York-based firm he founded in 1972, used the remaining amount of cash in his CNBC contest portfolio to buy more Allergan stock. Why did he do it and what advice does he have for regular investors faced with a similar situation? Here's what Sass said after he bought Allergan's stock at the open: "Allergan's stock was unduly pressured by arbitrage and other hedge funds selling (more than 4 million shares traded pre-market this morning) in an overreaction to last night's surprise U.S. Treasury aggressive new anti-inversion regulations which raised serious risks that the pending deal with Pfizer would break. Sellers in yesterday's after-market and this morning's pre-market trading failed to give appropriate recognition to the compelling standalone value of 'AGN' which we believe should trade well over $300 in the next year using relevant P/E and Free Cash Flow measures relative to peers." Sass on Allergan as a stand-alone company: "Allergan offers some of the best, long duration specialty pharma products, has an outstanding management and a very strong balance sheet. AGN will have zero net debt after getting $40.5 bln from the sale of its generic division to Teva by June. It has an extensive pipeline that should drive mid-teens organic EPS growth for the next several years. AGN's strong cash position after the Teva sale and substantial free cash flow places it in an advantageous position to purchase other pharmaceutical and biotech asset, which have declined sharply in value due to the recent very sharp selloff in the sector. Allergan is also well positioned to massively buy back stock." Sass's takeaway for regular investors: "When special investment opportunities like this arise, investors who understand intrinsic fundamental values should be poised to move very aggressively to capitalize on them." Watch an in-depth discussion with Sass about his investment philosophy here: Beat the market with Martin Sass Disclosures: Martin Sass is long shares of Allergan.

Allergan

Scott Eisen | Bloomberg | Getty Images

Hedge fund manager Martin Sass doubled down on Allergan on Tuesday, adding to shares of the specialty-pharmaceutical company for his CNBC Pro model portfolio after the stock plunged.

In early trading, shares of Allergan lost nearly a fifth of their value at one point as the Treasury Department took steps to curb so-called tax inversions. Pfizer plans to buy Ireland-based Allergan to reduce its tax bill, and that deal is now in question.

Sass, who oversees $7 billion in assets at M.D. Sass, a New York-based firm he founded in 1972, used the remaining amount of cash in his CNBC contest portfolio to buy more Allergan stock.

Why did he do it and what advice does he have for regular investors faced with a similar situation?