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Genzyme

A Media/Education Leader, Generic Drugs

Our new picks profit from rapid growth in two different age categories

 
We are selling one stock and buying two others. The net result: a portfolio better attuned to demographic trends and lighter in financial services, an area slated to become more vulnerable as the economic cycle progresses and interest rate hikes grow more likely.
 
Our sale is Bank of New York (reported on our web site). We still like the company, and at some point it could make its way back into our portfolio. We’re selling only because there are even better opportunities elsewhere, not because we’ve lost faith in the company’s underlying fundamentals.
 
Our two additions are the Washington Post (discussed last issue in Sector Sense) and Teva Pharmaceuticals. Both are strong beneficiaries of the demographic trends presented in the preceding article.
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Ultra-Fast Growers

With these companies, love means never having to say you’re slowing

 
For a stock-picker, happiness is finding that special stock that looks capable of generating rapid earnings growth for years to come. It doesn’t matter if it’s a drug company or a computer maker or an energy stock—if it can sustain rapid growth, it’s a keeper.
 
In this issue we present a handful of these potent pleasure producers. Call it our Valentine’s Day gift to you. But our intent isn’t to create a warm and fuzzy feeling—it’s to ensure that your portfolio will thrive no matter what the future holds. For rapid sustainable earnings growth is the one constant that equates to true and reliable investment success in any market environment. In good times, fast growers still pull ahead of the crowd. And when times get tougher—as they may become—they can be all that pull you through.
 
For some lessons in tough-times investing, go back to the mid-1970s and early 1980s. If in mid-1976 you had invested $10,000 in the S&P 500, by 1982 your investment was worth only about $7,500 after inflation.
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The Joy of Games: Scoring with Electronic Arts

Plus plaudits to our portfolio last quarter and sales of Cardinal Health and Intuit

 
If you’ve been following our Growth Portfolio recommendations, we don’t think you’re complaining. In TCI’s first full quarter (the fourth quarter of 2003), the portfolio climbed more than 16 percent, outperforming a peppy S&P 500 by nearly 5 percentage points. Every group and risk classification participated, and only one stock—Weight Watchers (which we still like, see p.11)—was down by more than 1 percent. Gains of 25 percent and more were chalked up by favorites ranging from Apex Silver to Tyco to H&R Block. Our energy stocks also were strong, though they remain cheap relative to the market and the current level of energy prices. These results didn’t stem from any black boxes—just diversification, an abiding emphasis on low PEG ratios, and a lot of elbow grease to ensure our growth and earnings estimates remain on target.
 
We’re making two sales and one new purchase.
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Health Care Do’s and Don’t’s

It’s easy to make a case for health care stocks. The U.S. is aging. By 2010, the percentage of Americans over 65 will rise to nearly 14.5, up from below 13 percent today. And worldwide over the next decade—think China—the number of people over 65 will climb by more than a hundred million. If even modest gains in prosperity also occur, the demand for health care should soar.
 
It’s also easy to make a case against health care stocks, at least a lot of them. The health care industry has long benefited from generous government funding. Today, though, with the federal surplus a monstrous deficit and defense grabbing an increasing share of federal dollars, government spending on health care will be squeezed.
 
So what to do? How can you capitalize on a sure trend—an aging population—without getting whip-lashed by governmental mood swings? The answer: steer clear of health care segments most dependent on government spending. Then, pick the best of the rest.
 
Let’s examine health care spending more closely.
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More Potent Drug Stocks, A Low-P/E Financial Giant

Plus the lowdown on our risk ratings

 
As we note in our Front Page article, we are dropping Universal Health Services and Eli Lilly from our Growth Portfolio. (We may buy Lilly again once the patent suit against its biggest drug is resolved—in fact, a large drop in the stock if Lilly loses could be a great buying opportunity.) We’re replacing them with biotech gem Genzyme and Walgreen, the nation’s largest pharmacy chain and third-largest retailer.
 
Walgreen (also in our Fund Finds Portfolio) is a big beneficiary of the shift to generic drugs. Generics are great for retailers because their higher margins more than offset the lower selling price. While prescription pharmaceuticals are the core of Walgreen’s business, the company’s stores carry mass merchandise and off-the-shelf drugs as well. Walgreen has been gaining market share in all areas, a sure portent that its 28-year string of rising revenues and earnings will continue well into the future.
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Weekly Update 04-05-04

hsbc_DSC_0042

Image by Herve Boinay via Flickr

Friday’s surprisingly strong employment report is both good and bad news. The good is pretty obvious in that it suggests further strong profit growth ahead, which is always a plus for stocks. Another plus is that it probably gives a boost to President Bush. Even though the long-term record suggests the market as well under Democrats as Republicans over the short term the market likely prefers the higher probability of an incumbent being reelected than the uncertainty of a new administration. These positives likely limit the market’s downside to less than 7 percent or so from current levels.Read more...

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Weekly Update 11-17-03

The Bombay Stock Exchange in India.

Image via Wikipedia

Despite strong economic news, stocks sold off a bit last week and remained under pressure today. That’s the sort of action you expect in a tired market. And tired is a pretty good adjective for stocks. With our Master Key still a neutral minus .14, we are not looking for a major sell-off, but a decline of about 7 percent or so from the highs. A dip to about 970 on the S&P 500 and the low 9000’s on the Dow would not be at all surprising.Read more...

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