Contrarian Investing Led Me to Salix Pharmaceuticals

NEW YORK (TheStreet) -- Every successful investor is a contrarian: If the sum of all wisdom on a stock says it is worth $100 today, that price captures not just today's value but some future value as well.

If you buy it in the expectation that is it worth more than that -- worth more than what hundreds of thousands of other investors believe -- that is, by definition, a contrarian point of view.

I know very few people that are entirely invested in U.S. small and mid-cap stocks, such as Salix Pharmaceuticals (SLXP). But I am. Why? Because I believe that if you are in the right place at the right time, then the market is a beautiful place to be right now. U.S. small and mid-cap stocks have been the sweet spot for the past 15 months.

I track 34 asset classes on a daily basis including gold, bonds and emerging markets. Here is my current ranking.

Data from Best Stocks NowApp

I see so many portfolios full of stocks that ran out of gas years ago. But they have big names and their CEOs says all the right things: Everything is going to get better. Just wait.

For them, investing is a faith-based initiative. I like value, performance and a good chart. My Best Stocks Now app tracks nearly 3,800 stocks. With so many to choose from, why do so many people choose the mediocre?

In addition to ranking asset classes, I rank 60 sectors in the market on a daily basis. Here is the current leader board.

Data from Best Stocks NowApp

Today, the U.S. biotechs, pharmaceuticals, aerospace and Internet stocks are all still breaking out. Social media stocks also remain strong and have led the market for the last 15 months. 

Data from Best Stocks NowApp

One of the pharma stocks I currently own and was also recently added to my aggressive growth model portfolio, is Salix Pharmaceuticals. Ever hear of it? Exactly.

Salix is $5.9 billion mid-cap company headquartered in Raleigh, N.C. Its specialty is the gastrointestinal disorders that affect millions of Americans every year. SLXP is committed to providing products that prevent or treat GI disorders.

That is good to know if you are a doctor or patient but investors have to look past that.

Here's why I like Salix.

Performance

SLXP is one of the best-performing stocks in the market right now. Let's take a look at its performance.

Data from Best Stocks NowApp

Over the last 10 years SLXP has delivered 20% per year along with relief for indigestion. The market has only delivered 5% per year over the same timeframe. Over the last five years SLXP has delivered 61% per year while the market's delivered only 17%. Over the last three years SLXP has delivered 31% per year while the market's delivered 13%.

Biotechs have been red-hot this past year. How has SLXP performed? Over the last one year SLXP is up 109%. It has more than doubled.

SLXP passes my performance test. In fact it gets both a performance and momentum grade 'A'.

Valuation

From a valuation perspective, I see a company that's expected to make $5.43 in earnings per share next year. This isn't a lab without earnings but a company with products and a lot of sales.

Data from Best Stocks NowApp

Salix is trading at 18 times forward earnings and it's expected to grow at a rate greater than that. In other words, SLXP is trading at a slight discount to its growth rate. When I do the math and extrapolate SLXP's earnings of $5.43 out over the next five years applying a reasonable multiple, I come up with a five-year target price of $183. The stock is currently trading at only $95.

If SLXP can stay on its current trajectory it has nearly 92% upside potential. SLXP gets a Gunderson Value Grade of 'A-'. If it gets off that track, I'll know by the performance of the stock itself. If that happens, I'll drop it.

Stock Chart

SLXP has great performance and valuation. But before we make any final decisions here, let's check that stock chart.

I like what I see. SLXP passes my performance, value and stock chart tests.

Data from Best Stocks NowApp

Out of 3,774 stocks I track in my Best Stocks Now app, SLXP comes in at #6! SLXP is a stock that I own in my aggressive growth accounts at Gunderson Capital Management and an example of a Best Stock Now.

At the time of publication the author had a position in SLXP.

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

More from Opinion

What's Happening in Video Games This Week: On the Road to E3

What's Happening in Video Games This Week: On the Road to E3

Wednesday Wrap-Up: Let's Talk About General Electric

Wednesday Wrap-Up: Let's Talk About General Electric

Week of the Women From Finance to Fast Food

Week of the Women From Finance to Fast Food

Tuesday Turnaround: Micron, Autonomous Driving, and J.C. Penney

Tuesday Turnaround: Micron, Autonomous Driving, and J.C. Penney

Cable Stock Investors Should Keep an Eye On Wireless Broadband's Rise

Cable Stock Investors Should Keep an Eye On Wireless Broadband's Rise