Author: Robert Freedland
Covestor model: Healthcare
Disclosure: Long TEVA
The Healthcare Model had a good month in January as positions became clear and performance was sorted out. During the month the only transaction was a sale of Par Pharmaceutical Companies (PRX) on 1/18/11 at a price of $36.18. PRX ended December at $38.51 and closed at $36.74 on January 18, 2011, the date it was sold (Source: Yahoo Finance http://yhoo.it/eHitBl). I was concerned with the report of 3rd quarter results back on November 3, 2010, which I had previously not considered closely (Source: Zacks http://bit.ly/gaODmW). Earnings came in impressively at that time, with growing gross margins, but revenue declined year over year. The stock wasn’t trading well and I looked for a better replacement in the generic drug market.
Teva Pharmaceutical (TEVA) was purchased at a price of $54.51 the same day that PRX was sold – January 18. What attracted me to TEVA for this model were the 3rd quarter results which came out November 2, 2010. Unlike PRX, TEVA reported a 20% increase in sales and a 62% increase in earnings to $1.15/share, up from $.72/share the prior year. Even with these fantastic results, they were still slightly shy of analysts who had been expecting $1.25 on $4.36 billion in sales (they came in at $4.25 billion in sales). The company reported that gross profit margin widened to 58% from 54.3% and adjusted margins came in at 62.5% up from 58.2% the prior year. (https://www.marketwatch.com/story/teva-3rd-period-net-up-62-sales-up-20-2010-11-02?siteid=yhoof2)
TEVA chart – Google Finance
There appears to be ample opportunity in the Healthcare model for continued price appreciation as many of the companies continue to report strong results and price performance remains solid. I shall be continuing to observe these holdings closely and will report back on changes that occur in this model.
