Generic-Drug Stocks Still Under the Weather
Laegeler says Par is in the midst of a risky strategy of expanding its development of brand-name drugs. These products have higher profit margins than do generics, but they're more expensive to make and market.
With a market cap of $634 million, Par is making a decision that is creating uncertainty in the minds of investors and analysts. Thomson Reuters reports five analysts are neutral and one has a sell rating.
Teva, Barr and Watson make some brand-name drugs; Mylan tried to do so, but it has decided to focus on generics. Sell-side analysts support Teva, and they still like Barr and Mylan. Thomson Reuters says each company has more buy ratings than the combined neutral and sell ratings. Watson has few buy ratings, with most analysts neutral.
Morningstar assigns its top, 5-star rating for Barr, Mylan and Watson. Based on their fundamentals, they are trading so far below their fair values that Laegeler says they're worth buying. Teva earns four stars, and Par gets two.
Forecasting a CombackFor investors with short-term outlooks, Barr has been the biggest disappointment. Its stock plunged from $49.65 on May 7 to $38.10 the next day after Barr issued first-quarter results that fell below expectations and lowered its full-year earnings forecast. Barr blamed weaker U.S. generic results, higher R&D expenses and under-performance by Plan B, the emergency contraception pill. Barr promised the second half of 2008 would be better. Merrill Lynch and Goldman Sachs cut their ratings to neutral from buy, and Zacks Investment Research dropped its rating to sell from hold. However, S.G. Cowen raised its rating to outperform from market perform.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV