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Why Bausch Health (BHC) Stock is a Compelling Investment Case

Chou Associates Management recently released its Q2 2020 Investor Letter, a copy of which you can download here. In U.S. dollars, a Series A unit of Chou Associates Fund decreased by 32.3% in the first half of 2020 while the S&P 500 Total Return Index decreased by 3.1% in the same period. You should check out Chou Associates Management’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Chou Associates Management highlighted a few stocks and Bausch Health Companies Inc. (NYSE:BHC) is one of them. Bausch Health Companies Inc. (NYSE:BHC) is a multinational specialty pharmaceutical company. Year-to-date, Bausch Health Companies Inc. (NYSE:BHC) stock lost 46.3% and on September 8th it had a closing price of $16.13. Here is what Chou Associates Management said:

“In early August, Bausch Health Companies Inc. announced that it is planning to spin off its eye care business, Bausch + Lomb, into an independent publicly traded company. This will allow the company to concentrate on its gastroenterology, aesthetics/dermatology, neurology and international pharma business.

Chairman and CEO Joseph Papa said, “We’ve looked at the value of our pure health companies like Alcon and Cooper and believe that Bausch + Lomb would compare very favorably when investors have an opportunity to make a judgment about the relative value of the stand-alone business”.

Comparables like Cooper Companies and Alcon Inc. are currently trading between 18 and 20 times EBITDA. If Bausch + Lomb trades at similar multiples as a stand-alone company, the total value of Bausch Health using sum-of-the-parts method, net of debt, should be worth north of $35 per share, as an inference. For a long time we have felt that Bausch was undervalued, but the investors were not giving credit that management has done a good job in running the operations, selling non-core assets, as well as de-leveraging its balance sheet. They felt the process was too slow, we hope the spin-off of Bausch + Lomb unit will be the catalyst that is needed for investors to price the company closer to its intrinsic value.”

In Q1 2020, the number of bullish hedge fund positions on Bausch Health Companies Inc. (NYSE:BHC) stock increased by about 13% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Bausch’s growth potential. Our calculations showed that Bausch Health Companies Inc. (NYSE:BHC) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.