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Drug and biotech stocks have underperformed in the recent market rally, but recent high profile investor conferences and positive FDA announcements have the group buzzing once again. Mergers and acquisitions have been in focus, and investors are always trying to find the next target.

I recommend looking to foreign soil for the next potential biotech acquisition, which is further backed up by recent comments by Pfizer (PFE) saying it is looking for acquisitions in emerging markets and the Middle East.

Many of these stocks lack analyst coverage on the Street and go unnoticed, although some are near 52 week highs.

A quick scan followed by a small amount of analysis regarding which firms could make compelling acquisition targets left me with the following names:

Dr. Reddy’s Labs (RDY): The company has recently begun to reorganize drug units and has received multiple positive FDA decisions in the last month. The Indian generic drug maker is in a group that is always looked at for takeovers, and Dr. Reddy’s has strategic relationships with firms such as Glaxosmithkline (GSK). Shares have nearly doubled in the past few months and strong volume in trading has returned to the name.

Biovail (BVF): A cash rich pharma focusing on cardiovascular, pain management, and central nervous system disorders. Shares trade 7.5X forward earnings and shares are nearing the 200 week EMA. The company recently entered new credit facilities and has acquired rights to Wellbutrin.

Crucell (CRXL): Shares are near a breakout at $24 and have been long rumored as a takeover target. At 8X cash and a play on flu vaccines it could make a nifty addition to a larger firm. Although the Pfizer deal for Wyeth crippled hopes that Crucell would get bought by Pfizer, it could still be the target of a number of other large pharmas.

Some other names to look at include Eurand (EURX), Simcere Pharma (SCR), and Protalix (PLX), but I will leave those to further discussion.

Disclosure: No Holdings

Source: Emerging Market Biotechs: Multiple Under-Appreciated Stocks