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 (NASDAQ: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 (NYSE: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.