Stock of the Month: Alcon (ALC)

Written by Donnie Nguyen

April 20, 2019

Intro

Alcon (ALC) first caught my eye in 2007 (pun intended). I was impressed with the company’s leadership in the eye-care industry and tremendous growth at the time. Its EPS growth was 46.6%, 6.4%, and 45.8% in 2006, 2005, 2004 respectively. It’s ROE was 39.3%, 43.9%, and 42.8% in 2006, 2005, and 2004 respectively. I bought the stock in March 2007 but forced to sell it a year later for a 30% gain when Novartis (NVS) acquired them.

Now it’s 2019 – Novartis just completed a spin-off of Alcon and I’d like to pick up where we left off!

Spin-offs are often times great investments. Legendary investors Peter Lynch and Joel Greenblatt are well-known for praising spin-off stocks. Mr. Lynch wrote in One Up On Wall Street that “Spin-offs often result in astoundingly lucrative investments.

Advertisements

Alcon’s leadership team looks impressive. Chairman Michael Ball and CEO David Endicott were both on the leadership team at Hospira, which was sold to Pfizer for $17 billion in 2015.

As a separate entity, Alcon can focus on what they do best – eye care. I’m looking for them to be a nimbler more innovative company that will provide outsized returns for investors.

Business Model

“Alcon is World Class Leader in Vision Care dedicated to helping people see brilliantly. With our 70-plus-year heritage, we’re now the largest eye care device company in the world – with complementary businesses in Surgical and Vision Care. Our business is built on a solid foundation of market-leading eye care expertise and deep, long-standing relationships with eye care professionals.

Alcon is leading in eye care innovation and is well positioned for growth in an expanding global marketplace. We have a long history of industry firsts, based on deep capabilities in materials science, surface chemistry and optics. Our strong pipeline includes more than 100 projects in process and more than 1,200 associates worldwide researching and developing treatments for vision conditions and eye diseases.”

Source: https://investor.alcon.com/

Stats (as of 4/18/2019)

  • Market Cap: 26.8B
  • Closing Price: 55.33

getting technical

On April 17, healthcare stocks tanked “on mounting political pressures”. The SPDR S&P Health Care Equipment ETF (XHE) dropped 3.18% that day. Why does this matter? Because Alcon only dropped 0.72% that day. This could mean that major shareholders are holding onto their shares which would provide some price stability for the stock.

    risks

    Alcon may not execute well on their growth strategy. In 5 years, I’m expecting sales and earnings per share to grow rapidly. If this doesn’t happen, it could be a reason to exit the position.

    Should I Buy?

    Alcon could be a great addition to a portfolio that needs some exposure to:

    • The Healthcare sector
    • Non-U.S. stocks

    Be sure to do your own research and determine for yourself if Alcon is a good stock for your portfolio.

    How Much Should I Buy?

    Here are some portfolio guidelines we Wolves try to live by:

    • Thou shalt not hold more than 35% in any one particular sector
    • Thou shalt not invest more than 10% of principal into 1 individual stock
    • Thou shalt make small purchases. The general rule of thumb is to spend no more than 2% of your portfolio on a single purchase and build up your position over time.

    The Bottom Line

    Alcon is a leading eye-care company with a great leadership team. As a spin-off, it’s in good company since spin-offs have a tendency to beat the stock market.

    Let me know what you guys think. Share this post on social media and leave a comment.

    Check out our past stock of the month picks and results here.

    DISCLOSURE

    I/we are long ALC and NVS.

    I wrote this article myself and it expresses my own opinions. I’m not receiving compensation for it (other than from Wolves Of Investing), and I have no business relationship with any company whose stock is mentioned in this article.

    stock of the month results

    Check out Wolves of Investing’s Stock of the Month past picks.

    FREE EBOOK

    Learn how to invest in stocks. Download Wolves of Investing’s free eBook: 5 Things I Wish I Knew Before Buying My First Stock.

    One Stock at a Time

    Wolves of Investing now has a YouTube channel. Check out our One Stock at a Time video series.

    Leave a Reply

    avatar
      Subscribe  
    Notify of
    Donnie Nguyen

    Donnie Nguyen

    Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.

    Connect with Donnie on Facebook and Twitter!

    Pin It on Pinterest

    Shares
    Share This