The Cabot Benjamin Graham Value Letter focuses on stocks that meet the strict value criteria of the legendary investor. Here, J. Royden Ward looks to Teva Pharmaceutical (NASDAQ: TEVA), noting, "Teva is based in Israel and develops, makes and sells generic and proprietary-branded (store brand) drugs."
The advisor explains, "The company is one of the largest generic drug-producing companies in the world and, in addition, sells active ingredients to other pharmaceutical companies.
"Teva's aggressive acquisition and product development programs are driving strong sales growth. The company recently purchased U.S.-based Barr Pharmaceuticals for $7.5 billion. Barr will increase Teva's generic drug sales significantly in the U.S. and parts of Europe.
"The company's generic drug business is growing more rapidly worldwide because consumers are opting for the lower-priced generics. President Obama and Congress are working to craft a health plan that will favor the use of low-priced generic drugs.
"Teva's product pipeline is very strong with 198 new drug applications waiting for FDA approval, several of which could become blockbusters. New drug introductions and added sales and earnings from Barr will boost EPS during the next several years.
"Sales rose 21% during the first half of 2009, and EPS increased 12%. We forecast EPS growth of 26% for the next 12-month period with 17% growth thereafter.
"Teva shares are undervalued at 12.5 times forward EPS. The company's sales and earnings have continued to grow despite the global recession. TEVA shares will likely advance to our minimum sell prrice target of 76.22 within one to two years."
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