Why I Picked Up Endo Pharmaceuticals At Under $35

| About: Endo International (ENDP)
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The market continues to rally, but the action feels a bit toppy at the moment. I think a key to making money in this market is to hit a lot of singles and to properly play sector rotation. To that effect, I took my 30% plus profits on Warren Resources (NASDAQ:WRES) Friday morning as the energy sector has had a nice run since the first of the year. I redeployed those funds into the healthcare sector as the sector (NYSEARCA:XLV) has underperformed the S&P over the last month (See Chart). I re-initiated a position in Gilead Sciences (NASDAQ:GILD) as I think that stock got oversold to open Friday morning. I also took a position in Endo Pharmaceuticals (NASDAQ:ENDP).

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Endo Pharmaceuticals - "Endo Pharmaceuticals Holdings Inc., together with its subsidiaries, operates as a specialty healthcare solutions company in the United States. The company operates in three segments: Branded Pharmaceuticals, Generics, and Devices and Services" (Business Description from Yahoo Finance).

Six Reasons to pick up Endo Pharmaceuticals at under $35 a share:

  • The stock is selling at the bottom of its five year valuation range based on P/E, P/B, P/CF and P/S.

  • The company is showing impressive earnings growth. It earned $3.48 in FY2010, is expected to make $4.61 in FY2011 and analysts project $5.49 in EPS in FY2012.

  • The stock looks like it has bottomed, is showing increasing technical strength and just crossed its 200 day moving average (See Chart)

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  • The impact for Endo Pharmaceuticals of the shutdown of a Nebraska plant operated by Novartis (NYSE:NVS) that produces key products for Endo Pharmaceuticals is likely to be short lived and concentrated in first quarter results.

  • The stock has grown EPS north of 21% annually over the last five years, yet is priced at about 6.5 times forward earnings. It also has a low five year projected PEG (.66).

  • The median analysts' price target on Endo Pharmaceuticals is $45. S&P has a "Buy" rating and a $46 price target on the stock.

Disclosure: I am long GILD, NVS, ENDP.