BOSTON ( TheStreet) -- Investment-bank Jefferies included six U.S. health-care stocks in its 2011 Top Picks List. All are expected to deliver double-digit percentage gains over the next 12 months. Health-care stocks have fallen out of favor recently as economic acceleration spurred a migration into riskier assets. But, with an aging baby-boomer population and increasing medical spending, the fundamental outlook for the health-care sector remains bright.

6. Pfizer ( PFE) is the world's largest pharmaceutical company, having purchased Wyeth in 2009.

Pfizer reported quarterly results yesterday, posting 47 cents of adjusted earnings, which exceeded analysts' consensus target by 2.4%. Its top-line tally of nearly $18 billion beat expectations by 3.9%. Pfizer's stock rallied as much as 6% intraday on the solid report. Pfizer has been a consensus value pick for more than a year. It is perhaps the cheapest Dow stock, trading at a forward P/E of 8.2 and a book value multiple of 1.7, 31% and 73% peer group discounts.

Jefferies had a positive reaction to Pfizer's quarterly report. Although the drug-maker's 2011 guidance missed researchers' consensus, it sees share repurchases and a decrease in research and development expenses as catalysts for the stock. Furthermore, 2012 earnings guidance came in ahead of Jefferies' estimate. Pfizer has solidified its position as the pharmaceutical leviathan and a focus internally, rather than on further acquisition activity, should improve operating results going forward. Jefferies' $22 target suggests a 2011 return of 15%.

Bullish Scenario: JPMorgan expects Pfizer to rise 25% to $24.

Bearish Scenario: Citigroup predicts a fall of 12% to $17.

5. St. Jude Medical ( STJ) makes devices for cardiac rhythm management and cardiac surgery.

It reported fourth-quarter results last week. St. Jude's adjusted earnings of 75 cents, representing 17% year-over-year growth, exceeded analysts' consensus target by 1.8% and its nearly $1.4 billion of sales beat the consensus by 2.5%, but the stock dropped 1% upon announcement. The operating profit margin dropped from 29% to 25%. Still, return on equity, a key measure of efficiency for stock holders, at 21%, beat the peer group and S&P 500 averages.

Jefferies had a positive reaction to the report, noting that St. Jude is poised to gain market share in 2011 on new products. St. Jude has attractive growth rates, having boosted sales and net income 11% and 18% annually, on average, over a three-year span. It is investing heavily in research and development to maintain its above-peer growth. Jefferies forecasts research spending rising from 12% of sales to nearly 13% in 2011. Although this investment spending will hinder margins in the near-term, it will also ensure continuation of St. Jude's robust product pipeline.

Bullish Scenario: JPMorgan expects St. Jude to gain 27% to $52.

Bearish Scenario: Citigroup predicts a drop of more than 7% to $38.

4. Biogen Idec ( BIIB) is an established biotechnology company, focusing on drugs for neurological disorders, autoimmune disorders and cancer. Some of its well-known drugs include Avonex and Tysabri for multiple sclerosis and Rituxan for non-Hodgkins lymphoma. Since 2008, Biogen has grown sales and earnings per share 16% and 35% annually, on average. Despite the solid expansion, Biogen's stock is undervalued. Jefferies notes that Biogen "trades at the largest discount to its core business cash flow yield of any of the large-cap biotechs."

The stock sells for a forward earnings multiple of 12 and a cash flow multiple of 11, attractive 43% and 71% discounts to biotechnology peer averages. Biogen reported its fourth-quarter performance yesterday, delivering adjusted earnings of $1.42, flat year-over-year, but exceeding researchers' consensus estimate by 16%. The top-line figure, at $1.2 billion, beat consensus by 4.1%. Many investors were concerned about the launch of Gilenya, an MS drug, at Novartis. Jefferies assesses unimpressive adoption, stating that Tysabri is still a superior treatment option.

Bullish Scenario: Jefferies forecasts that Biogen will rise 25% to $82.

Bearish Scenario: Goldman Sachs foresees a drop of 34% to $50.

3. Valeant Pharmaceuticals ( VRX) is a specialty pharmaceutical company, designing drugs for central nervous system disorders. It also has an over-the-counter business in Australia and branded drug operations in Latin America and Eastern Europe.

Potiga, an epilepsy medication, is in the final stage of approval and expected to launch in the U.S. and Europe in 2011. Jefferies boosted its price target for Valeant to $50 on Jan. 7, following the company's 2011 guidance, which entailed expectation of a substantially lower tax rate for the full-year 2011.

Jefferies expects the stock to garner much attention in 2011 on mergers and acquisition deals and continued above-peer growth rates. Valeant's stock has delivered annualized gains of 39% over a three-year span. It is not an equity without risk, though. The company suffered a GAAP loss of $208 million, or $1.27 a share, in the third quarter. Furthermore, it sells for a cash flow multiple of 21, a 68% premium to the pharmaceutical industry average. Failure to achieve expected costs synergies from the Biovail merger is a risk.

Bullish Scenario: Jefferies expects Valeant to climb 25% to $50.

Bearish Scenario: Goldman Sachs forecasts a fall of 13% to $34.

2. Varian Medical Systems ( VAR) is a medical-device company, selling cancer therapy systems and X-ray products worldwide.

It announced fiscal first-quarter results last week, posting adjusted earnings of 80 cents, reflecting 27% year-over-year growth and outpacing the consensus target by 9.7%. Varian's top-line figure missed the consensus estimate by 0.9%, sending shares down 4.5%. Strong oncology order growth in North America, Europe and China was balanced by a sharp drop in Japan orders. Varian's stock has outpaced the market, rising 33% in the past 12 months.

Despite the negative reaction to quarterly figures, Jefferies remains bullish on Varian's upside, seeing consensus-beats in 2011. Other analysts dissent, with eight, or 50%, ranking Varian's stock "hold" and one ranking it "sell." Varian is no screaming bargain, costing 18-times forward earnings and 5.4-times book value. Nevertheless, Jefferies believes that an improving hospital purchasing environment, innovative technology and order momentum offers material upside to 2011 and 2012 consensus earnings estimates.

Bullish Scenario: Jefferies expects Varian to rise 26% to $84.

Bearish Scenario: Goldman Sachs predicts a drop of 16% to $56.

1. Cubist Pharmaceuticals ( CBST) is a major player in anti-infectives, which prevent and treat diseases, specifically those caused by drug-resistant pathogens. For example, Cubist's major product, Cubicin, is used to treat complicated skin and skin structure infections as well as bacterimia.

The company has two anti-biotics that are in stage two of FDA approval. Since 2008, Cubist has grown sales and earnings per share 29% and 24% annually, on average. Its stock delivered annualized gains of 8.9% over that period. Recent deterioration of growth has led to a sell-off in Cubist, disconcerting investors.

Its stock is down 4% over the past three months. Fourth-quarter adjusted earnings decreased 28% year-over-year, but did beat the consensus estimate by 38%. The top-line, down 3%, missed consensus by 1.1%. The operating margin strengthened during the quarter, from 28% to 29%, indicating pricing strength. Jefferies is optimistic about the outcome of a patent litigation lawsuit, which has a trial date in April, and considers the small-cap undervalued, at just 13-times forward earnings, a 39% peer discount. But, it considers reliance on Cubicin a concentrated risk.

Bullish Scenario: Jefferies expects Varian to rise 39% to $31.

Bearish Scenario: ThinkEquity foresees a drop of 10% to $20.

-- Written by Jake Lynch in Boston.

>To see these stocks in action, visit the 6 Best Health Care Stocks portfolio on Stockpickr.


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