It has been a very solid first couple of trading days in 2012. Although I continue to be concerned about Europe, I am encouraged by the market action so far in the new year. I am especially satisfied to see two of the healthcare positions in my portfolio show considerable early strength. Given their strong fundamentals, low valuations and catalysts; I think this will continue into the near future.
Life Technologies (LIFE) has been a disappointment since I picked it up in the middle of the last year, but it looks like it has regained its traction.
Momentum drivers for LIFE:
1. It just launched its GeneArt Algae Engineering kits product line.
2. Insiders bought $1mm worth of shares over the summer at higher prices.
3. The stock was just upgraded to “Buy” from “Hold” by Maxim.
Key value observations on LIFE:
- S&P has a “Strong Buy” on LIFE with a $58 price target on the stock.
- The company is showing steady EPS growth. It earned $3.55 per share in FY2010, should make $3.71 in FY2011 and analysts project $4.08 in earnings in FY2012.
- LIFE is selling at 10 times operating cash flow and has a significant stock buyback program.
- Despite growing earnings at a 21% annual clip over the past five years, the stock sells for 10 times forward earnings.
Teva Pharmaceuticals (TEVA) slogged through 2011 and underperformed the overall market due mainly to concerns about the upcoming expiration of its top selling drug, Copaxone. I think the company is ready to move on from its sluggish performance in 2011 and provide investors with a much happier 2012.
Momentum drivers for TEVA:
1. The company just announced a new CEO that was well received by the market.
2. $28B in brand name drugs will use their exclusivity in 2012.
3. TEVA launches the generic version of the blockbuster Lipitor in May.
Key value observations on TEVA:
- The stock is selling at the very bottom of its five year valuation range based on P/E, P/B, P/S and P/CF.
- The company has an A- rated balance sheet, a very low beta (.20) and provides a 1.6% yield.
- TEVA sells for a forward PE of under 8 despite growing earnings at an over 17% annual rate over the past five years.
- Credit Suisse has an “outperform” rating on TEVA and a price target of $53 on the stock.