Time to score some cheap drugs, man
September 02, 2008
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RELATED TICKERS: TEVA
Time to score some cheap drugs, man
Today I have decided to take the plunge and make the first pharma / biotech selection for my CAPS portfolio. Normally I stay far away from these fields because they are not my area of expertise, but I came across a small article in Barron's this weekend which was so compelling that I have decided to add a company in CAPS. What company am I talking about? Teva Pharmaceutical Industries (TEVA).
Headquartered in Israel, Teva is the world's largest manufacturer of generic drugs. It currently controls 20% of the market for generic drugs and after its recent acquisition of Barr Pharmaceuticals is completed it will control 24%. The fact that this company produces "cheap" drugs will enable it to flourish in the coming years. While there is a lot of uncertainty as to what the new Presidential administration and the potential for a goverment that has all three houses controlled by one party will bring in terms of change to the healthcare industry, one thing is for sure...everyone wants healthcare to become cheaper. As a result, generic drugs will likely play a key role in any healthcare reforms. More than 50% of Teva's sales come from the United States, so a major policy change there which favors generic drugs would be a boon for the company.
Not only is Teva currently well positioned to take advantage of the trend towards cheaper drugs, it has a stellar balance sheet that contains more than $1 billion in cash that it plans to use for future acquisitions. Teva has already made $750 million worth in acquisitions so far this year.
Teva's stock has actually performed quite well over the past two years, gaining 37% over that time, but analysts see even more upside. In the recent Barron's piece, Flemming Meeks said that he expects the company's stock to hit $60/share by the end of 2009, which is a nearly 28% increase from today's price.
Deej
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