Teva Pharmaceuticals (TEVA) has not been the best performer in my portfolio since I added a position in the stock during the third quarter of 2011. However, since TEVA went under $37 a share in late November, it has been on a solid roll. That momentum is accelerating over the last month and I believe TEVA has a lot more to offer on the upside for the rest of 2012.
Momentum drivers for TEVA:
- The company just brought in a highly thought of CEO from Bristol Myers Squibb
- Teva's management announced a $3B stock buyback in late December. This is about 8% of float at current prices.
- The company is going to have a substantial win from Generic Lipitor starting in May.
Key value observations on TEVA:
- Generics are a primary beneficiary of long term demographic trend of aging populations in the developed world as well as the increasing desire by governments and companies to cut costs. Record amounts of blockbuster drugs are coming off patent over the next 24 months as well. TEVA is largest generic drugmaker in the world.
- Even after its more than 15% run up since it lows in November, TEVA still is selling near the bottom of its five year valuation range based on P/B, P/E, P/CF and P/S.
- The company is showing positive earnings momentum. TEVA earned $4.54 in FY2010, should make $4.97 a share for FY2011 and analysts are projecting $5.61 a share in earnings in FY2012.
- The company has grown EPS at a 18% clip annually over the last five years. Investors can now pick up TEVA for just 8 times forward earnings.
Disclosure: I am long TEVA.