Below are nine stock picks for 2009, which are taken from the 1,000 company database of ETF Innovators [ETFI] Indexes, and which I own in my personal brokerage account. Given my cautious stance toward the economy and stock market, the picks have a defensive theme favoring the healthcare sector as a source of defensive growth companies.
1.) Consumer Staples – Tobacco: Altria Group (MO) has lost about 30% of its market value since spinning off the international tobacco operations into a separate public company as Philip Morris International (PM), resulting in a dividend yield of 8.5% with a stock price near 15 bucks as of today. Altria declared its quarterly dividend of 32 cents today, with an ex-dividend date of 12/22/08 which is payable on 1/9/09.
2.) Consumer Staples – Packaged Food: Kraft Foods (KFT) is trading with a historically high dividend yield over 4% since losing about 23% of its market value in the past year. Profit margins will expand thanks to falling commodity prices, but Kraft will face headwinds from the move by consumers to buy cheaper, generics such as store brand equivalents. However, Kraft has lost 12% in market value since it started trading in mid-2001 which shifts the risk/reward in favor of buying at current low levels.
3.) Healthcare – Generic Drugs: Caraco Pharma (CPD) is still undervalued despite the gain of nearly 36% today as the pending tender offer for Taro Pharma (TAROF) by India's Sun Pharma (Bombay: 524715) implies a fair value of over 10 bucks
Trends in favor of the global generic drug industry include the following: nearly $70B in brand name drug sales with looming generic competition through 2012, a push to increase generic substitution rates from 65% of all prescriptions dispensed to over 70% to save money for the consumers and the government (through Medicare Part D spending), continued industry consolidation of small and mid-caps by industry leaders such as Teva Pharma (TEVA) and Mylan Labs (MYL), and the potential for legislation next year regarding generic versions of high-cost biological agents
4.) Healthcare – Biotech: A World Health Organization [WHO] report released this week
estimates that cancer will overtake heart disease as the top cause of death in the world by 2010, which is part of an overall trend that predicts global cancer cases and deaths will more than double by 2030. Celgene (CELG) is a leading cancer biotech which offers an excellent entry point now below 50 bucks with a PEG ratio below one.
5.) Healthcare – Diagnostics: China Medical (CMED) is trading near its IPO levels of August 2005 despite excellent growth prospects and is a buy around 20 bucks with a dividend yield of 2.5% as uncertainty over a large $345M acquisition has spooked some investors, sending the stock down sharply by over 50% in the past three months. The acquisition provides CMED with a molecular diagnostics platform for HPV, including strains that cause cervical cancer – which is an estimated $700M market in China alone along with expansion plans in the huge U.S. and European markets, pending regulatory approvals.
6.) Speculative: Javelin Pharma
(JAV) has nearly doubled from its intraday low last Friday of 40 cents after reporting positive Phase 3 results for Dyloject, which will support an application for FDA approval in 2H09. Dyloject is already on the market in Europe and the Company is engaged in partnership discussions for the product, along with another late-stage pipeline candidate Ereska. Insiders continue to buy the stock over the past six months and given the tremendous decline in market value over the past year a buyout may be more likely than a partnership in 2009.
7.) Transports – Railroad: Kansas City Southern (KSU) is a regional rail transport play near its 52-week lows which is poised to benefit from a recovery in the housing market and continued demand for coal transport to power the energy grid. The CEO of KSU, Michael Haverty, appeared on CNBC in late October, stating that rail transport was showing continued strength in the transport of coal, chemicals, and grains with weakness in the transport of consumer goods and housing related commodities.
8.) Healthcare – Biogenerics: Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA – which does not issue decision deadlines. Despite Momenta's stock price surge of 33% in the past five days; it is still well below the yearly high of 20 bucks and an approval for M-Enoxaparin would be a significant catalyst since Lovenox posted sales of about $4B in the last year for Sanofi-Aventis (SNY).
While other companies such as Teva (TEVA) and Watson Pharma (WPI) also have pending applications for generic Lovenox, it is encouraging the researchers from Momenta contributed to determining the cause of the tainted heparin earlier this year. Also notable is the move by Merck (MRK) announced yesterday to expand into generic biotech drugs as a key growth division for the future, which may have something to do with the major up-trend in shares of Momenta.
9.) Technology: Apple (AAPL) is a stock I suggested as a replacement for GM in the Dow 30
, which is a technology bellwether and stock market leader, soaring over 1,000% in the past 10 years and its iPhone is outselling Motorola (MOT) and Research In Motion (RIMM) while its Mac and iPod brands continue to gain market share. Apple creates products and brands that people want with a trendy image, illustrated by the commercials comparing it to the bland PC market portrayed by Microsoft (MSFT).