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Comments On Teva And Generics Stocks

|Includes: MYL, Teva Pharmaceutical Industries Limited (TEVA)

There has been some attention paid by Mr. Market to the replacement of the chief of global generics at Teva (NYSE:TEVA), the world's largest generics house. Some of the commentary is in regard to the allegedly cheap shares of TEVA.

I do not provide investment advice. That said, I consider TEVA's large debt load significant. The amortization charges that its management excludes from its "non-GAAP" (fake) "earnings" represent real cash out the door that never entered the P&L statement. Instead, the company was allocated time to earn back the capital outlay as the acquired products generated positive cash flow over time. These amortization charges are real. They represent prior expenditures that are now reaching the P&L statement. Excluding them from a calculation of earnings tricks investors into ignoring the cost of acquiring them while only counting their operating cash flows. Based on normal, real world, sensible, cash-based accounting principles, aka GAAP, TEVA trades at a market multiple. It has not been an especially well-run company for some time. The generics industry tends to run in cycles, and perhaps a year ago completed a massive up-cycle, perhaps the most favorable ever. Now it may be time for a bust. I don't know the future, but I wouldn't touch a generic stock from the long side any time soon unless there is clear evidence of an upturn in pricing and cheaper TTM P/E's using GAAP. There is no obvious bottom for TEVA, Mylan (NASDAQ:MYL) as increased competition for EpiPen looms, and their competitors. In addition, most if not all of these companies have loaded on the debt, which should be associated in their cyclical business with lower than average normalized P/E's.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Not investment advice. I am not an investment adviser.