If you haven't made money these past two months, you haven't been paying attention. You could pretty much just toss darts and find undervalued companies two months ago but now the pickings are getting slim. It looks as though the easy money has been made for the short term and that we will have to get back to old-fashioned stock-picking to carry us through the summer.
I still like commodities and therefore I still like the Australian dollar and the Canadian dollar. There are various ETFs that allow you to play those trades but they been on an incredible run so I would look for a pull-back before jumping into the resource sector.
Likewise, recent gains in China and India have helped to make up for some of the carnage inflicted upon our portfolios last fall. However, these markets look overheated to me at this point although they are still great long-term bets.
Like a number of other market watchers, I've been trying to figure out how to play the Obama trade. After a dizzying array of policy initiatives in his first hundred days and his reach-out to the Muslim world, it would appear that his next major policy initiative will be universal health care.
The administration pretty much had its way with the financial institutions and the auto sector so health care companies are likely next on the hit list. Big Pharma would appear to be an easy target, as will the HMOs and the health care practitioners. Devastated state budgets will not make it easy on the medical equipment suppliers so it seems to me that the generic drug manufacturers have the best chance of coming out of this impending upheaval in the health care sector smelling like roses.
There are number of players in this sector, TEVA Pharmaceuticals (NDQ: TEVA) being one of the best-known. However, I've chosen a lesser-known generic drug maker to recommend this week. I think it should reward investors over the next 12 months with market-beating performances.
Perrigo Company (NDQ: PRGO)
This company is called Perrigo. It is a leading manufacturer of generic over-the-counter and prescription pharmaceuticals. When you go to your local drugstore and see the retailer's private label of Aspirin or cough syrup selling for substantially less than the branded versions, there's a good chance that Perrigo was the manufacturer of that product.
The company also produces a broad range of over-the-counter consumer products including pregnancy tests, sleep aids, smoking cessation aids, anti-acids, etc. Recently they made large bets in the nutrition area by offering private-branded versions of popular multivitamins and other types of supplements. The company is also active in prescription pharmaceuticals through their Chemgis division, which provides active pharmaceutical ingredients for a variety of customers worldwide.
Perrigo is headquartered in Israel but has manufacturing facilities in Mexico, the U.S., and Germany along with operational divisions in China, India, and the U.K. As you can imagine in a depressed economy, consumers are increasingly choosing generic versions of popular over-the-counter products, which has allowed the company to grow while the sales of more expensive mainstream name-brand products are flat to down.
Revenue from their most recent quarter (to March 28) increased by 5% to $506 million as compared to $481 million in the prior year (figures in U.S. dollars). Sales of consumer health care products grew by 12%. Earnings came in at a record 50c per share.
For the first nine months of the 2009 fiscal year, net sales from continuing operations were $1.5 billion, an increase of 19% over fiscal 2008. Reported gross profit was $432.1 million, increase of 13% over last year, driven by the consumer health care segment.
Barron's recently ran a favorable article about the company, drawing attention to the fact that as long as consumers are under the gun they are likely to be frugal in their shopping habits. If they get used to using generic products it will be hard for branded manufacturers to persuade them to switch back when the economy recovers.
None of the products in the company's portfolio are particularly exotic and verge on being nondiscretionary for most consumers. So even if the market corrects again I think the stock can provide some stability in your portfolio. The fact it pays a small dividend (22c a year) contributes to the overall return.
The stock, which closed on Friday at $26.81, has recovered significantly from its March low of $18.54 but is still well below the 52-week high of $40, reached last September.
Action now: Buy.