Harvard Business School
. Rossi joined
Morgan Stanley Dean Witter
, where she follows health care information technology, in 1993. Prior to that she worked in corporate finance at
and as a consultant at
Industry Outlook and Style
Rossi believes "the stars are aligned" for health care distributors generally. Most of these companies have one significant new business, she notes. Because these companies have a fixed infrastructure, "they get lots of leverage from volume growth and can usually eke out some margin improvement when the volumes go up." That drives their EPS growth, their return on capital and -- it's hoped -- their stock price, says Rossi.
Health care stocks, distributors in particular, rallied strongly last year, in part because investors were seeking refuge from the battered technology sectors. Another reason for the sector's strong performance, contends Rossi, is that "the world was getting better for them generally."
The Morgan Stanley analyst is now trying to assess whether investors will stay defensive. Near term, she predicts they will. If she's right, health care stocks should still have some "juice," as she puts it.
"But by the second half," she adds, "the sentiment may shift back to technology, and what we would hope is that the earnings performance of these companies would be such that they would still keep people interested." She asserts that they are going to produce bottom line results, despite the current macroeconomic environment. So while a repeat of last year's extraordinary performance is unlikely, she says, a 15% upswing is possible and, given the current market, quite good.
Within the sector Rossi singles out two companies:
, her top pick. (Morgan Stanley Dean Witter has had investment banking relationships with both firms.)
AmeriSource has recently won $500 million in new business contracts; Rossi predicts strong revenue growth for the remainder of 2001. Cardinal's recent acquisition of
is expected to result in significant cost savings for the company, and she says it has exceptional growth prospects.
Favorite stock for next 12 months:
"They are the best of the bunch -- consistently performing. And they've got a lot of juice because they're just closing on an acquisition that actually may allow them to beat some numbers going forward, or at least increase guidance going forward."