Here's a one page summary of this weekend's (April 15) Barron's (paid sub. req.), noting stocks to watch for Monday morning when the market opens and brief comments on the Barron's articles. Note: clicking on a stock ticker pulls up opinion, analysis and a quote for that stock.
Barrons Cover: Finding the Fountain of Youth by Jay Palmer
- Highlighted companies: Amgen (NASDAQ:AMGN), Genentech (Private:DNA), Geron (NASDAQ:GERN), Alteon (SYI)
- Thesis: Many companies and academic researchers are working on the core problem of aging -- the fact that cells and organs seem to "wear out" over time. Companies are trying many different approaches, including investigation of stem cells and novel enzymes that can reduce the buildup of intracellular toxins which seem to act as an aging signal.
- Quick comment: Ponce de Leon tried to find the fountain of youth and ended up discovering Florida in 1591. It is unclear if later explorers will be more successful.
Investment Roundtable: Finding Good Medicine by Bill Alpert
- Highlighted companies: Medtronic (NYSE:MDT) St. Jude (NYSE:STJ) Johnson & Johnson's (NYSE:JNJ), UnitedHealth Group (NYSE:UNH), Zimmer Holdings (ZMH), Encysive Pharmaceutical (ENCY) Regeneron Pharmaceuticals (NASDAQ:REGN), Cephalon (NASDAQ:CEPH), Boston Scientific (NYSE:BSX), AVI BioPharma (AVII).
- Participants: Bill Alpert interviews three people about the future for investment in the healthcare sector. Dr. Kris Jenner manages the $1.7 billion Health Sciences fund for T. Rowe Price with average annual returns above 20% in the last three years. Dr. Joseph F. Lawler invests in biotech at the Purchase, N.Y. hedge fund Sagamore Hill Capital Management. Bruce Nudell follows medical-device stocks at investment bank Sanford C. Bernstein.
- Thesis: The recent drop in prices in the healthcare sector does not reflect the underlying fundamentals of the sector; the roundtable is mixed on the question if stocks in the healthcare/biotech sector are cheap enough to interest value investors. Many biopharmaceuticals such as hormones produced via biotechnology will soon go off patent, leading to the rise of a generic biotech sector. Different segments in the healthcare industry have different outlooks and will become increasingly uncorrelated. The roundtable is quite bullish on Boston Scientific (BSX), feeling that the merger with Guidant has been undervalued. The the roundtable is bearish on AVI BioPharma (AVII) and AtheroGenics (AGIX), feeling that both stocks are mere biotech 'lottery tickets'.
- Quick comment:It seems that narrow healthcare funds proposed by Ferghana-Wellspring may well fulfill a market need for very narrow sub-sector exposure to areas such as orthopedics or cardiac devices (stents and pacemakers). Several ETF's target this sector including SPDR Biotech (NYSEARCA:XBI), Powershares Dynamic Biotech and Genome (NYSEARCA:PBE), Health Care SPDR (NYSEARCA:XLV), S&P Global Healthcare Sector Index Fund (NYSEARCA:IXJ), iShares NASDAQ Biotechnology Index (NASDAQ:IBB), iShares Dow Jones US Healthcare (NYSEARCA:IYH) and Powershares Dynamic Pharmaceuticals (NYSEARCA:PJP). Of these ETF's XBI and XLV have the lowest expense ratios
Sepracor's Sweet Dream by Jacqueline Doherty
- Highlighted companies: Sepracor (SEPR), Neurocrine Biosciences (NASDAQ:NBIX), Sanofi-Aventis (NYSE:SNY).
- Thesis: The current market for insomnia drugs grew by 31% in 2005, to $2.77 billion, after three years of 20% growth. Competitive threats to Sepracor's market leading Lunesta are showing up on the horizon. At the moment Sepracor is a two trick pony with Lunesta and its asthma drug Xonpenex. Xonopenex is currently facing patent challenges and threats of withdrawal of medicare reimbursement.
- Quick comment: The market for non-benzodiazepine sleeping pills has exploded, however the patents for many of the second generation anti-psychotics are expiring between 2007 to 2011. These drugs are very safe and very effective encouraging sleep. One of the largest off-label uses for Seroquel is as a sleeping aid. At $1.80 for 25mg tablet, it much cheaper than 1mg Lunesta @ $3.12 tablet.
Redeeming Hewlett-Packard by Mark Veverka
- Highlighted companies: Hewlett-Packard Company (NYSE:HPQ)
- Thesis: Chief executive Mark Hurd is trying to restore HP to a position of dominance in the computer hardware and accessories (printers, cameras) markets. Investors who bought stock on February 9 2005, the day Fiorina's resignation was announced, have enjoyed a 58% run up. Hurd's strategy is combination of cost cutting and unwinding ex-CEO Carly Fiorina's restructuring of HP's business units. CEO Hurd has publicly stated he wants HP to have an operating margin of 13-15%, which is much higher than other PC makers (excluding Apple (NASDAQ:AAPL)). HP's printing business which is 29% of revenues but 57% of total operating profit, is under pressure on the ink side and exerts a disproportionate influence on the company's results. During Carly Fiorina's reign, the profits on the printing and ink businesses carried the company, while all other divisions were losing money. HP's plan is to expand into the commercial low volume printing market and corporate copier markets.
- Quick comment: Cleaning up after Carly Fiorina is tough job but the underlying businesses and brand are quite strong. A good example of Carly Fiorina's successful leadership was introduction of an HP-branded Apple iPod.
How to Master a Disaster by Robin Goldwyn Blumenthal
- Highlighted companies: H&R Block (NYSE:HRB), General Motors Corp (NYSE:GM), Fannie Mae (FNM)
- Thesis: Blumenthal interviews Joe Feshbach of Joe Feshbach Partners, an investment firm specializing in investing in distressed companies. To paraphrase Leo Tolstoy, 'Happy companies are all alike; but each unhappy family is unhappy in its own way.' Feshbach discusses the critical death factors of unserviceable leverage, accounting fraud, and slow deterioration.
- Quick comment: Joel Greenblatt's book You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits brought distressed investing to the masses. Other books that are relevant to distressed value investors are Edward Altman's Corporate Financial Distress and Bankruptcy: Predict and Avoid Bankruptcy, Analyze and Invest in Distressed Debt and Thornton O'glove's Quality of Earnings
Rational IPO Exuberance by Arindam Nag
- Thesis:The European IPO market is gaining steam, fueled by the offerings of new blue chip companies resulting from government privatizations as well as more solid companies being offered to the capital markets.
- Quick comment: Two ETF's that benefit from IPO activity in the US are the First Trust IPOX-100 Index Fund (NYSEARCA:FPX) and KBW Capital Markets (NYSEARCA:KCE)
Polishing Patterson's Smile by Jim McTague
- Highlighted companies: Patterson Companies (NASDAQ:PDCO), Sybron Dental Specialties (SYD), Henry Schein (NASDAQ:HSIC), Danaher (NYSE:DHR), Pfizer (NYSE:PFE)
- Thesis:A classic case of a growth company that didn't grow fast enough to please investors, Patterson distributes dental, medical and veterinary supplies, growing 20% a year by a combination of organic growth and accuitions. An unexpected decline in dental equipment sales in 4Q2005 sent the stock down 33%. Patterson's aggressive growth strategy has also annoyed some manufacturers of dental equipment, such as Danaher, and lead to a shareholder lawsuit alleging that management over-promoted the stock prior to insider sales.
- Quick comment:Patterson entered the S&P500 in 2005. Despite revenues of $2.42 billion and free cash flow of 175.7 million, Patterson does not pay dividends, preferring to focus cash flow on internal reinvestment and acquisitions.
Growth On Many Fronts Jack Willoughby
- Interview:Michael T. Carmen, Manager Hartford Growth Opportunities Fund
- Highlighted companies:Schering Plough (SGP), Gol Intelligent Airlines (NYSE:GOL)
- Thesis: Carmen claims to follow an investment discipline called "ATOM" meaning accelerating tangible operating momentum. Carmen is looking for companies with accelerating revenue growth and improving margins. He aims for at least 30% price appreciation on each investment. Carmen believes that the fund's dedicated research staff of 48 analysts gives him a competitive advantage over other growth funds. Hartford Growth Opportunities Fund has a 130% turnover while having an average 27% annual return over the past three years.
- Quick comment: A similar style can be achieved by combining the Powershares Zacks Small Cap fund (PZJ) with the Powershares Valueline Timeliness Select (PIV) funds. Both funds follow a quantitative strategy based on earnings growth and acceleration, with PIV tending to focus on mid and large cap growth.
Electronic Investor: Healthy Surfing by Kathy Yakal
Reviews of health care stock research sites, including our very own Biotech Stock Blog, which Barron's notes:
Bloggers, of course, are all over biotech, but we found a lot of promising sites that had been abandoned. The Biotech Stock Blog (biotechstockblog.com), part of the rapidly growing Seeking Alpha Network of blog sites, is still kicking. Don't come here looking for recommendations, but the blog's editorial content, daily charts, and conference-call transcripts will give you some potentially profitable ideas. Blogmaster Eric Muse has been a research analyst and trader specializing in health care for nine years, and roughly 80 active contributors (some of whom are well-known bloggers) pitch in with their own analysis. Seeking Alpha sites are extraordinarily well-conceived and executed, and their interactive nature and depth of contributions make for a lively mix of data and ideas.
Seeking Alpha is not affiliated with Barron's.