"Analysts estimate the worldwide market for generics will increase from $75 billion to $125 billion by 2012," says Michael Shulman.

In his ChangeWave Biotech Investor he states, "The key question for us is: Who is going to make the most money from these expirations? And the 800-pound gorilla in this market is our long-time holding, Teva Pharmaceuticals (NASDAQ: TEVA).

"Teva is the largest and best generics company in the world with $9.4 billion in sales in 2007 and the gap between it and its competitors is growing. Teva has 331 products on the market, 65% more than its closest competitor.

"More importantly, based on its business model of a mix of proprietary and generic drugs, the company's operating margins are 10 points higher than competitors and that gap is widening. In fact, in the United States, the number of prescriptions filled with Teva generics is 50% more than its closest competitor.

"Be clear on this point: When it comes to generics, size does matter. The more a company sells, the more profit and cash it has available to do research and acquire more generics to add to its product list -- and the beat goes on.

"Our portfolio has been notably light on pharmaceuticals and consumer products; we're rectifying that by buying Johnson & Johnson (JNJ)," says Gregory Dorsey in Leeb's Income Performance Letter.

"Getting a handle on exactly what the 122 year-old company markets is no easy task, given the broad scope of its product line-up. And to say that J&J has been a resounding success on the corporate
stage would be an understatement.

"Through its more than 250 operating businesses, the parent company lays claim to being, among other things: the world's premier consumer health company, the largest medical devices and diagnostics company, the third-largest biologics company and the sixth-largest pharmaceuticals company.

"While acquisitions have played an important role in making the company what it is today, J&J has also achieved these milestones through internal growth. It boasts 75 consecutive years of rising sales.

"You can invest for all the right reasons and still get the wrong result," notes long-standing turnaround stock expert George Putnam, referring to the poor performance of the pharmaceutical sector in recent years.

Here, in his industry-leading The Turnaround Letter, he offers a fascinating review of 10 leading drug stocks which he now believes offer a combination of growth potential at "pretty cheap" valuations. Here is his overview.

"In 2000 and 2001, when the Internet boom was becoming a bust, many smart investors turned away from technology stocks and put their money into drug stocks. How could you go wrong with the big pharmaceutical companies?

"Demand for their products was growing as the population aged. These companies had huge research
and development programs that seemed to keep cranking out new blockbuster drugs. And most of them had great balance sheets, with many paying handsome dividends.

"Much of this reasoning has been borne out in the intervening years. Many large drug manufacturers have rung up substantial revenue gains over the last decade. So what's happened to the big drug stocks? With few exceptions they have gone sideways or down – in some cases down a lot.

"Although Pfizer (NYSE: PFE) recently posted an 18% drop in its first-quarter earnings, I remain a long-term bull on the shares," notes Nilus Mattive in the income and growth oriented Dividend Superstars.

"Results were hurt by tougher generic competition for the company's blood-pressure drug Norvasc and allergy treatment Zyrtec. Pfizer pulled in $0.41 a share in the quarter, but would have earned $0.61 excluding costs associated with two acquisitions.

"A lot of investors are treating the poor earnings as a death knell for the company, especially since Lipitor - PFE's biggest product - will also lose patent protection in 2010. However, I've watched countless drug stocks go through these cycles before, and I continue to believe it's smarter to buy when things look the worst.

"This is still the world's largest drug company ... it still delivers big, fat dividend checks ... and it is making strong moves to reorganize its operations and focus on new drug development. For all those reasons, I remain positive on the shares."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.

Two leading advisors with noted expertise in the biotech sector have both been long-term fans of Celgene (NASDAQ: CELG), both holding the stock in their respective model portfolios.

Here, Nate Pile, editor of Nate's Notes, and John McCamant, editor of The Medical Technology Stock Letter, each take a look at the encouraging prospects for this biotechnology firm.

Nate Pile explains, "Now that the Pharmion merger is behind us, it appears that investors are once again
recognizing Celgene for what it is – namely, one of the premier stories in the biopharmaceutical space.

"As I have said a number of times before, if I could only own one biotech stock for the next ten years, Celgene would be it... and I encourage you to make it a 'first choice' for your portfolio as well!

"The stock is likely to exhibit its usual volatility around the company's upcoming earnings report, but I encourage you to take advantage of any sell-off that may occur to aggressively add to your position in this market leader. CELG is now considered a strong buy under $60 and a buy under $68."

John McCamant states, "Celgene had some good news of late on the thalidomide front. The company has received approval of the application to expand the drug's label to treat newly diagnosed multiple myeloma (MM) patients in Australia.

In a post earlier this week, we looked at two of Warren Buffett's positions in transportation stocks. He has also revealed in SEC filings that Berkshire Hathaway (NYSE: BRK.A) has bought 1.51 million ADRs of GlaxoSmithKline (NYSE: GSK).

Vivian Lewis, who holds GSK in her Global Investing portfolio, explains, "GlaxoSmithKline is off 22% since our purchase late in 2006, so how nice that the Oracle of Omaha sprung for it now. Why did he?

1) The stock has a a 4.5% yield, always nice. Buffett is a value player, not a growth man, especially in the current economy. Drugs are refuges in a downturn;

2) A recently defused scandal over its lead drug, diabetes treatment Avandia, whose nasty side-effects (heart trouble) surprised doctors and researchers. The heart trouble also affects competing diabetes drugs, result of too-rigorous attempts to 'normalize' blood sugar levels. There will be lawsuits but they ignore the fact that the side-effect was unanticipated;

"The stock that I think may put up the best performance in 2008 is Bristol-Myers Squibb (NYSE: BMY)," says Chuck Carlson, the industry's leading authority on dividend reinvestment plans and editor of The DRIP Investor.

Here, the advisor looks at the stock's role in the defensive pharmaceutical sector, its increasing dividend yield, and its takeover potential.

"I know this may strike some of you as an odd choice, especially given the fairly mediocre performance these shares have turned in over the last several years. However, some of the uncertainty hanging over these shares has been lifted.

"The firm has won its patent suit with Apotex over its important Plavix medication. Also, Bristol-Myers has finalized a civil settlement agreement with the U.S. Department of Justice.

"I like that the firm is cutting costs as well restructuring its operations. The company plans to reduce total headcount by approximately 10% by the end of 2010. Bristol-Myers recently announced the sale of its medical-imaging business.

"And Wall Street anticipates additional asset sales, possibly the company's woundcare supplies company, ConvaTec, and its Mead Johnson nutritional business. These moves would be consistent with the company's plan to become more of a player in the BioPharma sector.

"Two additional reasons Bristol- Myers may get some play in 2008 is that 1) health-care stocks traditionally perform well during rocky market periods; and 2) high dividend yielders usually provide a buffer during tough markets.

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"My favorite speculation for 2008 is Australia-based Starpharma (OTC: SPHRY), a 'home run' pick," says Gregg Early in The Real Nanotech Investor.

"The drug delivery sector has been revolutionized by the application of nanotechnologies. And one of the fastest up-and-coming countries in this sector is Australia.

"Starpharma has landed a few significant co-development and assessment deals with some major firms in recent months as it awaits FDA approval for its VivaGel, dendrimer-based topical cream that can prevent the spread of sexually transmitted diseases, specifically Herpes and HIV.

"VivaGel also has spermicidal qualities that are so compelling, one of Starpharma's recent co-development deals was with Durex, one of the world's top condom manufacturers. Durex is considering replacing the near-ubiquitous Non-oxynol 9 spermicidal coating with VivaGel, which is proving to be safe and more effective than N-9.

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"My favorite speculative stock for 2008 is Elan (NYSE: ELN)," says Ken Kam, editor of Marketscope, who also featured the same stock as his favorite in last year's report.

"The stock started this year at $14 and now trades at over $24 -- up over 70% for the year, and more than triple from our original recommendation. It is hard to believe it, but I think Elan still has more room to run.

"I originally recommended it in June 2005 at $7 after the company withdrew Tysabri, a multiple sclerosis drug, from the US market. After being reapproved by the FDA nearly 17 months ago, Tysabri is used by less than 20,000 out of more than 1 million potential patients in North America and Europe.

"For all the gains we've seen so far (up 70%), these Tysabri sales have ramped up more slowly than I expected. However, next year there is a good chance that Tysabri sales will hit an inflection point where sales can more than double in a short time.

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"My favorite conservative stock for 2008 is Pfizer (NYSE: PFE)," says Nilus Mattive, editor of Dividend Superstars. "Everyone's heard of this company -- it's the largest pharmaceutical company in the world.

"The company boasts a stable of well-known drugs, including Viagra, Celebrex and its current best-seller, cholesterol-lowering agent Lipitor.

"Despite its bellwether status, investors haven't been too keen on Pfizer recently. They're concerned about generic competition for the company's Zoloft and Norvasc. And although Lipitor's patent expires in 2011, there are also worries about increasing competition in the cholesterol market. I can see why -- $12.9 billion worth of Lipitor was sold in 2006, more than any other single drug in the world!

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"My favorite conservative idea for 2008, Abbott Laboratories (NYSE: ABT), is a leading player in several growing health care markets, offering a wide range of prescription pharmaceuticals, nutritional and diagnostic products, and medical devices," says Jim Stack, money manager and editor of InvesTech Market Analyst.

"The company has a long history of stable sales and earnings growth fostered by its strong research and development program, acquisitions and global expansion. As a defensive health care play, we particularly like the diversification this company provides.

"It derives nearly 30% of profits from overseas markets, while pharmaceuticals account for 44% of sales, hospital products 20%, nutritional products 18% and diagnostics 15%.

"Currently, Abbott is enjoying double-digit sales growth in three of these four major divisions, and we expect this strength to continue at least through 2008. The company is a bright spot in the drug industry, which has been plagued in recent years by patent expirations and meager product pipelines.

Now that Merck & Co. (NYSE: MRK) and Schering-Plough Corp. (NYSE: SGP) both posted better-than-expected second quarter earnings, will investors show some love to big pharma?

Shares of Merck are down about 5% over the past three months while Schering-Plough has eeked out a mere 2.5% gain. Perhaps investors are worried about Merck's Vioxx legal battles, which so far it has largely won, and the controversy surrounding its cervical cancer vaccine Gardisal. Schering-Plough's $14.4 billion acquisition of Akzo Nobel's Oreganon unit may also be concerning some people. Maybe people think that if Pfizer Inc. (NYSE: PFE) is up the creek, all big drug companies are in the same boat.

Regardless, both companies posted impressive numbers that should quell the concerns of investors. Their stocks remain pretty cheap. Merck trades at a forward price-to-earnings multiple of 17, slightly cheaper than Schering-Plough's 20.

Merck, based in Whitehouse Station, New Jersey, reported net income of $1.65 billion or 77 cents, up from $1.5 billion, or 69 cents a year earlier. Revenue jumped 5.9% to $6.1 billion fueled by demand for blockbusters such as the high-cholestoral treatment Vytorin which it makes in a joint venture with Schering Ploug. Excluding some costs, Merck earned 82 cents, beating the 72 cent-average estimate of analysts surveyed by Thomson Financial. The revenue figure also beat the $5.77 billion, analysts had expected.

Vytorin also boosted results at Kenilworth, NJ-based Schering Plough. Net income climbed to $539 million, or 34 cents a share, more than doubling from $259 million, or 16 cents. Revenue jumped 14% to $3.2 billion. Excluding some costs, profit was 41 cents, beating the conesensus forecasts of 35 cents. Revenue also beat expectations of $3.07 billion.

"Once in critical condition, Schering-Plough has staged a remarkable turnaround," says Dan Sullivan, who recently selected the drug maker as his Spotlight Stock of the month.

The editor of The Chartist -- a top performing newsletter that uses a relative strength model in determining its portfolio holdings -- explains, "Earlier in the decade Schering-Plough drug maker was plagued with a series of problems and it appeared that the recovery process would be long and difficult."

Under its previous CEO, Richard Kogan, he notes, it faced record government fines for quality control problems in its manufacturing plants, an SEC investigation, alleged Medicaid fraud, and the loss of its patent for its allergy drug Claritin, which accounted for about 34% of worldwide sales in 2001.

The shares, he observes, traded at a high of 60 in 2001 and fell into the mid-teens in 2003. He states, "To rescue it from life-support, Schering-Plough hired Fred Hassan to replace Kogan as CEO."

The advisor suggests that most analysts doubted that Hassan could overcome the problems facing Schering-Plough (NYSE: SGP). The consensus, he notes, was that the company would be broken up or sold off to one of its rivals. So far, says Sullivan, the critics have been proven wrong.

Following its latest earnings report, Bill Martin notes, "Gilead Sciences (NASDAQ: GILD) has shown once again showed that its HIV drug franchise is truly best-in-class."

The editor of the FindProfit trading service reports that Gilead earned a profit of $407.4 million, or 85 cents per share. Excluding stock-based compensation, he notes, EPS was 93 cents.

He also notes that analysts were looking for EPS of 80 cents per share. Meanwhile, revenues jumped 49% to $1.03 billion from $692.9 million a year ago, and above the consensus of $990 million.

The advisor explains, "Gilead saw great overall growth among its anti-HIV drugs. Truvada, which accounted for 41% of GILD's product sales, led the way with a 39% year-over-year increase in sales."

He points out that Atripla is the combination of Bristol-Myers Squibb's Sustiva and Gilead's Truvada. The latter is a combination of Gilead drugs, Emtriva and Viread.

Martin notes, "The continued solid growth of Truvada sales after the launch of Atripla indicates that this drug may not totally cannibalize the sales of Truvada and GILD's other older anti-HIV drugs."

Meanwhile, the advisor notes that the overall biotech sector has been making a "nice comeback of late," and GILD has been a strong performer. He says, "With management leaving its conservative guidance intact, we think the stock has room to 'surprise' to the upside later this year.

He also sees the stock as defensive and notes, "If the economy is showing signs of peaking, a stock like GILD is a good candidate to outperform the market."

For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.

Bill Martin, editor of FindProfit recently added Gilead Sciences Inc. (NASDAQ: GILD) to his long-term growth portfolio, and the stock has risen sharply following a strong fourth quarter report.

According to Martin, the company saw particular strength in its HIV franchise. He explains, "Gilead's HIV treatments (Viread, Truvada, Atripla, and Emtriva) were clear winners, with sales growing 67% to $642.4 million and surpassing Wall Street's expectation of $628.7 million in sales."

Although the company reported a net loss of $1.67 billion, or -$3.62 per share, for the quarter, the advisor explains that by backing out a charge of $2.04 billion for its acquisitions of Corus and Myogen, the company actually earned a profit of 78 cents per share versus 59 cents per share a year ago.

Also for the quarter, he notes that revenue jumped 48% year over year to $899.2 million. These results, he points out, "handily" beat analyst expectations of 68 cents EPS on revenue of $850.9 million.