2 Cheap Healthcare Stocks In Early Innings Of A Move Higher

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 |  Includes: TEVA, TMO
by: Bret Jensen

One of the key skills investors or traders need to possess for achieving results that beat their targeted benchmark is the ability to spot emerging trends in the overall market. These days, money quickly rotates among sectors within the indexes. Earlier in the year, I noticed how the biotech sector was becoming a stellar performer and was fortunate enough to pick up some huge winners such as Horizon Pharma (NASDAQ:HZNP) and Novavax (NASDAQ:NVAX), among others.

In the past five trading sessions, I have noticed that two deep-value healthcare stocks in my portfolio: Teva Pharmaceutical Industries Limited (NYSE:TEVA) and Life Technologies Corporation (NASDAQ:LIFE), have started to finally outperform the S&P significantly. (see chart) I think this is just the beginning of a substantial move in both stocks.

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"Teva Pharmaceutical Industries Limited develops, manufactures, and sells pharmaceutical products worldwide. It offers generic pharmaceutical products in various dosage forms..." (Business description from Yahoo Finance).

Four reasons Teva is a solid value play at $42:

  • The stock is at the very bottom of its five-year valuation range based on P/B, P/E, P/S and P/CF.
  • Consensus earnings estimates for FY2012 and FY2013 have ticked up in the last month. Teva now has a forward P/E of just over 7.
  • The 20 analysts who cover the stock have a median price target of $52 a share on Teva.
  • The stock yields almost 2% and has beat earnings estimates in each of the last four quarters.

"Life Technologies Corporation operates as a global life sciences company. The company's Molecular Biology Systems division offers molecular biology-based technologies, including basic and real-time PCR, RNA interference, DNA synthesis, sample preparation, transfection, cloning and protein expression profiling, protein analysis, and thermo-cycler instrumentation technologies." (Business description from Yahoo Finance).

Four reasons Life Technologies is a bargain at under $44:

  • The company sells at just over 10 times forward earnings, a discount to its five-year average of 14.6.
  • The stock is at the very bottom of its five-year valuation range based on P/B, P/E, P/S and P/CF.
  • The 19 analysts who cover the stock have a median price target of $53 a share. Credit Suisse has an "outperform" rating on the stock and S&P has a $58 price target on the stock.
  • The stock sells at around 9 times operating cash flow, and an insider has made the first insider buy in late April 2012 with $150K purchase at higher prices.

Disclosure: I am long HZNP, LIFE, NVAX, TEVA.