Contrarian Value Ideas

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Teva - >>> What stocks might the market's smartest investors be buying up right now? According to our Foolish contributors, Teva Pharmaceutical Industries (NYSE:TEVA), Stericycle, Inc (NASDAQ:SRCL), and Hertz Global Holdings (NYSE:HTZ) are three that come to mind.


http://www.fool.com/investing/2016/12/20/3-stocks-the-smartest-investors-are-buying-right-n.aspx?source=yahoo-2&utm_campaign=article&utm_medium=feed&utm_source=yahoo-2



Smart investors love highly profitable drug companies

Sean Williams (Teva Pharmaceutical Industries): Though some investors have been running for the exit when it comes to branded and generic drugmaker Teva Pharmaceutical Industries, I believe the smartest investors have been loading up on shares of a highly profitable drugmaker at a cheap price.

To state the obvious, Teva has some near-term issues. The closing of its deal to buy Actavis (Allergan's generic drug unit) took longer than expected, and more recently Teva had to sell some of its generic assets to appease regulators in select countries. During its third-quarter report, Teva also lowered its full-year sales and profit outlook slightly to account for slower-than-expected sales from new product launches.

However, what Teva also mentioned during its Q3 report that continues to be overlooked is that its weaker-than-expected new product sales are from delayed launches and not competition. Teva still anticipates recognizing every cent in revenue as expected; it merely pushed the revenue growth curve out about a year.

Teva should also benefit in a big way from its Actavis acquisition. The deal will improve margins via cost synergies, expand Teva's already massive generic drug portfolio, and could pull operating margins higher from a pricing perspective. With so many compounds being manufactured, Teva may be able to use its clout as leverage to increase its generic drug prices.

Another key point is that Teva managed its patent expiration on multiple sclerosis blockbuster drug Copaxone splendidly. It used legal finagling to keep generic drugmakers from entering the space long enough to introduce a reformulated version of Copaxone that could be taken less frequently. This less-frequently used formulation provides patients and physicians with a brand-name MS drug, and it has a clear benefit over the generic competition. In other words, Copaxone should continue to deliver strong sales for Teva.

If we keep our eyes on the long-term prize, we'd see a drug developer valued at roughly seven times forward earnings and sporting a dividend yield north of 3%. Those are numbers that smart investors are probably going to like.

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