The cardinal sin of artificial intelligence & finance
Having received pushback on a bullish piece KCR had written on Cardinal Health (describing it as a low-quality company that deserved to be cheap), they discovered that the disparity in views was caused by the failure of two separate AI-driven products. Sold to financial professionals and institutions as efficiency tools, both rendered wildly inaccurate calculations for ROIC for CAH. In KCR's latest report, they look to 1) set the record “straight” on CAH; 2) demonstrate that high-quality stocks are as overvalued today as they were in 1999; and 3) show that active management can help investors purchase top-quality stocks at cheap prices.
Edition: 192
- 09 August, 2024
Healthcare
The drug distributor possesses three of the most prized attributes of any stock 1) strong, predictable growth prospects; 2) low business risk; and 3) normalised FCF generation capability of >$2bn p.a.. CAH trades at only a 13.4x P/E multiple, a ~35% discount to the S&P 500 Index, while also trading at a substantial discount to Cencora and McKesson (avg. P/E 17x), despite having broadly similar growth prospects, cash-generating ability and balance sheet strength. If CAH shares were accorded a P/E multiple in line with the S&P 500, a very reasonable target, the stock would be trading ~50% higher than the current price.
Edition: 189
- 28 June, 2024