Valeant Is Having a Healthy Run

NEW YORK (TheStreet) -- When an investor comes to me, I can tell where that person is in the Cycle of Disappointment.

First is the investor fresh from one of the big wire houses whose portfolios are full of well-known stocks that ran out of gas years ago.I'm thinking of stocks like Cisco (CSCO) and Pfizer (PFE) and Lilly (LLY).

Maybe there are a lot of bonds in there, too. That potential client did everything right, but still the returns were all wrong. The S&P 500 was up nearly 30% over the past year. Old stocks and old theories don't work, and some of these investors are just barely ahead for 2013.

Second is the do-it-yourselfer. After seeing the guys in suits underperform the market, this investor figures "how hard could it be?" and starts laying his own money down.

There is a lot of trading for a lot of the wrong reasons. I see lots of imbalances, maybe too much money in one stock, and people who underestimate the time and energy it takes to keep an eye on the market.

When I talk with them we discuss how markets have sectors, and how we should look for good stocks inside of hot sectors. This year, pharmaceuticals and biotechs have been hot.

As I checked out a potential client's portfolio the other day, I saw a few pharmaceutical companies including Pfizer, Lilly and Merck (MRK). But are these the pharmas to hold in the future? Not really.

Last year was good to the pharmaceuticals. In fact, pharma is now my third-ranked sector in the market.


Data from Best Stocks Now App

One stock that gets high marks from my Best Stocks Now app is Valeant Pharmaceuticals (VRX).

Data from Best Stocks Now App

What a phenomenal run its CEO has given to shareholders of the company.

Valeant is a $37 billion, large-cap, multinational pharmaceutical company headquartered in Montreal. It develops and markets prescription brands, branded generics, and over-the-counter consumer products. Currently Valeant has several drugs in their pipeline, including drugs to treat epilepsy and dermatological and ophthalmological issues.

Performance

That sounds great. But the real story is in the stock performance.

Data from Best Stocks Now App

Over the last 10 years Valeant has delivered 24% per year to investors, while the market has delivered only 5%. And over the last five years, Valeant was one of the top-performing stocks in the entire market, with 69% returns per year to investors -- more than quadruple the market return of 14%.

For the last 12 months, the stock is up 88%. Again it's more than tripled and even almost quadrupled the returns of the market.

Lest you accuse me of being a momentum investor, half of my purchase formula is valuation. I don't like buying stocks that are at or near new highs. But I am a big believer in performance. I like to buy the best-performing stocks in the market. Sorry, Pfizer and Lilly. Hello, Valeant.

Valuation

A stock must also meet my valuation criteria, which VRX passes. I currently have a five year target price of $205 on the share.

Data from Best Stocks Now App


VRX is no Lilly, Pfizer or Bristol-Myers Squibb (BMY) yet. I don't think Valeant can perpetually continue to grow at this rate. Having said that, analysts predict that Valeant will grow at about 15% per year over the next five years. Not bad. And when I stick a valuation on this company, I still get a stock price that meets my valuation criteria.

Stock Chart

The third component of a Best Stock Now is a good, healthy stock chart.

It's a tall order, but Valeant fits the bill. It's an example of a Best Stock Now, coming in at #111 out of nearly 3,800 stocks overall.

Data from Best Stocks Now App

 

This article represents the opinion of a contributor and not necessarily that of The Street or its editorial staff.

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