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Sometimes the best investments are in stocks on the verge of an inflection point. Below are some companies that could be at a fundamental inflection point. These companies' forecasted earnings are expected to substantially outperform the trailing results. As such, investors should pay close attention to these names. They are worthy of some additional research.

Pfizer Inc (NYSE:PFE)
Trailing P/E: 19.69
Forward P/E: 9.10

The mega branded drug company develops, manufacturers, markets and distributes drugs throughout the world. The company has faced severe pressure to the top and bottom lines because of expiration of patent exclusivity on several of their most important drugs. In 2010, they had basic US product patent expiration for Aricept and Lipitor. BeneFIX and Xalatan face this expiration in 2011. Geodon, Viagra and Detrol face expiration in 2012. These expirations are a well known part of the bearish thesis but they should not be underestimated. Many of the expiring drugs contribute significantly to Pfizer's fundamental performance. In 2010, the expiring drugs had the following sales:

  • Lipitor - $10.733 billion,
  • Aricept - $417 million,
  • BeneFIX - $643 million,
  • Xalatan - $1.749 billion,
  • Geodon - $1.027 billion,
  • Viagra - $1.928 billion,
  • Detrol - $1.013 billion

From 2008 to 2010, the company grew biopharmaceutical segment revenues from $44.174 billion to $58.523 billion in large part due to the Wyeth acquisition. The company generated 57% of 2010 revenues overseas, with 28% coming from Europe and 18% from Asia.

Larry Robbin's hedge fund, Glenview Capital, is among one of the market's biggest Pfizer bulls. In their most recent shareholder letter, they explained, "At 8.5x 2012 trough earnings we believe Pfizer is poised to deliver a significant total return to shareholders over the coming three to five years." In the same letter, Robbins went on to speculate that the drug maker was worth $27 per share.

In addition to Glenview Capital, Pfizer has a large shareholder base of notable investors including: Paulson & Co, Dodge & Cox, Wellington Management, Greenlight Capital. This alone could provide a potential shareholder friendly stock price catalyst down the road.

Shareholders can look forward to more than just earnings growth in the coming year. As other investors, including Glenview Capital, have pointed out, Pfizer's diversified segments could also profit a nice sum of the parts upside. In 2010, biopharmaceutical revenues contributed $58.523 billion of the company's total $67.809 billion of sales. Animal health contributed $3.575 billion, consumer healthcare contributed $2.772 billion and nutrition contributed $1.867 billion. As separate entities, these segments could free themselves from much of the biopharmaceutical negativity that has limited Pfizer's stock price.

Investors should take a closer look at Pfizer. Despite the negative headlines and headwinds, the company's earnings are expected to meaningfully grow in the coming year and cost cutting, positive drug pipeline surprises and special situation catalysts could provide serious upside to the stock price.


Alpha Natural Resources (NYSE:ANR)
Trailing P/E: 42.80
Forward P/E: 7.49

The coal mining company recently completed its merger with troubled miner Massey Energy Company in a cash and stock deal. The new merged company is now a massive bet on the continued demand for metallurgical coal. Following the merger, ANR's asset portfolio will include more than 100 mines, around 5 billion tons of coal reserves and nearly 14,000 employees. About 1.3 billion of Massey's 2.8 billion tons of reserves are metallurgical coal.

Bullish investors are betting on continued strength in coal pricing because of strong global demand from economic expansion as well as a possible shift towards coal as petroleum prices rise and nuclear energy falls out of favor. In addition, investors may view the merger as an opportunity for sizeable cost cutting opportunities either through layoffs or increased productivity per employee.

Paulson & Co is the miner's largest shareholder with nearly 10% of the total shares outstanding. Considering the fund's recent successes, Paulson's stake, addition to the projected strong earnings growth, is a reason for investors to take a closer look at this industry giant.


Teva Pharmaceuticals (NYSE:TEVA)
Trailing P/E: 13.29
Forward P/E: 8.79

The generic drug manufacturer should continue to benefit from expirations of popular drugs' exclusivities. As blue chip biopharmaceuticals like Pfizer struggle, companies like Teva should generally be able to thrive at their expense. From 2006 to 2010, Teva increased revenues from $8.408 billion to $16.121 billion. This success is even more impressive considering that during this same period, gross profits and operating income increased at an even larger percentage. Gross profits increased from $4.25 billion to $9.06 billion and operating income increased from $801 million ($2.09 billion if you exclude purchase of R&D in process) to $3.871 billion in 2010.

In addition to affordable price/earnings, the company trades at a PEG ratio of 0.89, a price/sales of 2.67, a price/book of 1.91 and has profit margins of 20.4%. Investors should be very interested in this stock. It deserves a closer look. Not only should it continue to benefit from upcoming branded drug expirations, it should also benefit from upcoming increases in health care coverage related to the recent US healthcare legislation.

TEVA has an impressive collection of shareholders including: Capital Research Global Investors, Baillie Gifford and Company, Owl Creek Asset Management, Omega Advisors and Glenview Capital.

Mylan Inc (NASDAQ:MYL)
Trailing P/E: 30.99
Forward P/E: 9.68

The company develops, manufacturers and distributes both generic and branded drugs throughout the world. Between 2008 and 2010, revenues rose from $5.137 billion to $5.450 billion. Going forward the company has significant potential for upside. As of December 31, 2010, the company had 47 product approvals in the US and 757 total worldwide. In addition the company had 170 ANDA's (drug applications to market a generic equivalent of a drug product).

Among the risks, the company has modest customer concentration. In 2010, McKesson Corp and Cardinal Health each represented 11% of the consolidated revenues. These levels have been relatively constant over the last few years. In addition, the company has a fair amount of debt. In 2010, the company reported $331.46 million in interest expense. While the company generates significant cash flow from operating activities, any hiccup in operations could be problematic.

Mylan workforce includes around 13,000 employees and 3,000 contractors. The company's shareholders include: Paulson & Co and D.E. Shaw.


United Continental Holdings (NYSE:UAL)
Trailing P/E: 45.19
Forward P/E: 4.11

The airline company is the product of a 2010 merger between Continental Airlines and UAL Corporation. UAL is riding an industry wide rebound despite rising energy costs and mediocre economic growth. Because of severe reductions in flight capacity and a bounce back in consumer and business travel, the industry has gained a degree of pricing power that they have not had in recent years. This pricing power is most clearly evidenced by a string of successfully implemented fare increases.

In the quarter ending March 31, 2011, the company's revenues nearly doubled from a year ago quarter to $8.2 billion. Even without the effects of the merger, United Air Lines' revenues still rebounded during the same period, jumping from $4.243 billion to $4.676 billion.

In addition to improving business, investors should look forward to continued benefits from the merger. By 2013, management expects to realize $1.0 to $1.2 billion in annual synergies in as much as $900 million of incremental revenues and more than $200 million of cost synergies.


Valero Energy (NYSE:VLO)
Trailing P/E: 27.34
Forward P/E: 6.76

The independent petroleum refinery is the largest standalone operation in the United States. As of December 31, 2010, it operated 14 refineries with a total capacity of around 2.6 million barrels per day. They also have 10 ethanol plants with capacity of around 1.1 billion gallons per year and 403 million bushels of corn processed per year.

The company's revenues and earnings are expected to grow in the coming year. Revenues at Valero have fluctuated greatly over the last few years. Between 2006 and 2010, revenues have ranged from $64.599 billion to $106.676. Operating income has displayed a similar variation. If income from continuing operations can return to 2007 and 2006 levels of $4.23 billion and $4.86 billion, respectively, investors could see meaningful upside.

They also have retail exposure through 994 company operated stores through the US which sell around 119,900 barrels per day.

Chesapeake Energy (NYSE:CHK)
Trailing P/E: 25.08
Forward P/E: 9.33

They are the second largest producer of natural gas. They have 3.0 bcfe per day of production and 85% of this is natural gas. CHK had 17.096 tcfe of proved reserves at the beginning of the year. Their stock has enjoyed a rebound because of an improving natural gas outlook as well as capital structure changes made following some prodding from famed activist shareholder, Carl Icahn.

One of the stock's biggest risks may be the management's inattention to common shareholder interests. Chesapeake has long been criticized for their CEO compensation, which is often generous regardless of stock and company performance. After around a third of shareholders refused to endorse the company's executive compensation, management promised to improve transparency. This may be a small improvement for shareholders. Despite the earnings growth in the upcoming year, there are other alternatives if shareholders are turned off by the poor corporate governance.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PFE, ANR, TEVA, MYL, UAL, VLO over the next 72 hours.

Source: 7 Companies Whose Earnings Are Expected to Skyrocket