The Top Cheap Generic-Drug Stocks

The current cutthroat competition among generic-drug companies will likely lead to a consolidation phase in the industry. Consider, for instance, the generics acquisition Mylan Laboratories(MYL) made last week.

The Canonsburg, Pa., company won the bidding war for the generic-drug business of Germany's Merck KGaA. The $6.63 billion price, however, is steep, especially when you consider Mylan's market cap is $4.9 billion.

In light of that deal and of the potential for more, Stockpickr offers a list of the Generic-Drug Manufacturers that could be next in line to get acquired.

The list of companies features, for instance, Teva Pharmaceutical(TEVA), a large Israeli comany that's a big player in generics. Teva, which trades at just 11 times EBITDA, is also one of the companies included in the Parkinson's Treatment Stocks, a list of companies best positioned to cure the degenerative disease.

Generic drugs are a cutthroat business, and the smart money it seems is getting out of the business. As 24/7 Wall St. points out, when major drugs come off patent, generic-drug companies swoop in and market them on the cheap.

Wal-Mart's(WMT) plan to sell $4 generic drugs isn't helping matters. On several occasions, Jim Cramer has stated that generic-drug companies are engaged in a price war. The margins just don't appear to be there.

Robert Coury, Mylan's CEO, made the bullish case for the company's acquisition. "The fit between our two companies is truly outstanding," he said.

Mylan's business is almost totally in the U.S., so by acquiring the Merck unit, Mylan gains access to 90 markets worldwide. However, I believe the bullish case is weak, requiring perfect execution to overcome the tremendous debt Mylan has taken on.