This week’s hot stock from a hot sector is Watson Pharmaceuticals Inc. (WPI). Watson Pharmaceuticals, Inc., a specialty pharmaceutical company, engages in the development, manufacture, marketing, sale, and distribution of generic and brand pharmaceutical products primarily in the United States.
Watson recently reported earnings and provided Wall Street strong guidance for the rest of the year, lifting earning per share guidance to between $2.40 and $2.52 per share up from $2.18 to $2.28. This trend should continue as the pharmaceutical company has two new drugs hitting the market as you read this.
- RAPAFLO, a selective alpha blocker for benign prostatic hyperplasia.
- GELNIQUE, a urology drug expected to launch in mid-May.
Both should contribute to a healthy balance sheet that sees $571 million in cash and marketable securities. We like more than the cash in hand as MPI trades with a PEG ratio of 1.34 (the lower the PEG is the better.) We typically look for companies with a PEG ratio blow 1.5 as studies have shown these companies tend to outperform the market. At only 1.28 times sales, it’s fairly priced and in line with the rest of the industry. And, it’s current P/E of 15 is less than analysts’ expected growth rate of 18.7% for the year. In fact, of the 19 analysts following Watson, 13 have raised their earnings outlook for ’09 and 2010.
Looking at WPI’s stock chart, we can see a series of new 52 week highs ahead. If the stock can break $32.95, it should be off to the races as it seeks a new level of resistance. We also see a positive MACD crossover on WPI’s stock chart. To us it means the stock should be headed higher in the near-term. Finally, we would expect generic drug makers to be beneficiaries of Obamacare.
Suggested Closing Price Stop: $31.12
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