Cardinal Health has a vested interest in the nation's health

Posted Apr 21st 2009 1:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

It goes without saying that this market remains a stock picker's market. Select the wrong stock, and there's a 30-40% haircut up ahead; select the correct stock, and you're positioned for the recovery with modest downside exposure. For a chance at the latter, consider Cardinal Health (NYSE: CAH).

In general, analysts view CAH's filing to spin-off its clinical medical products segment in mid-2009 as allowing Cardinal to focus on revitalizing its health care supply chain services business, which recently returned to profitability.

Analysts expect CAH's revenue to increase 5-7% in F2009, aided by an improving independent pharmacy customer base. The First Call F2009/F2010 EPS estimates for CAH are $3.54/$3.80.

The risks? Rising unemployment historically means fewer people accessing health care and pharmacy services, so a failure of the U.S. unemployment rate to peak by mid-2009 would not be good news for CAH. With the aforementioned as backdrop, the risk / reward is still favorable at these price levels ($31-35) for investors who can tolerate moderate risk, but do note the tight Sell / Stop Loss.

Stock Analysis: Cardinal Heath is a moderate-risk stock. Consider buying a 25% position in CAH now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your CAH position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $26.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: CAH, Cardinal Health