by Rick Pendergraft | January 3, 2013 1:30 pm
Editor’s note: This column is part of our “Best Stocks for 2013” series; stay tuned for more entrants today and tomorrow.
A recent settlement and continued changes in the pharmaceutical industry make one stock our pick for healing what ails most portfolios — lackluster growth. Investors looking for a solid player in their portfolios should add Mylan (NASDAQ:MYL) as the calendar turns to January 2013.
Mylan makes generic and branded generic drugs, and operates one of the largest active pharmaceutical ingredient (API) manufacturers and a specialty pharmaceutical business. With more than 1,000 generic products sold in over 150 countries, Mylan is well suited for growing your portfolio in 2013.
The Technical Take
Basic technical analysis of Mylan shows a sustained uptrend in the stock, with the stock price returning nearly 20% gains annually for the past five years. Mylan stock soared 25% in 2012, ending the year within shouting distance of its 52-week high.
A lackluster summer churned the stock in the mid-24s before it finally broke out above the $24.50 level, building solid momentum ever since.
The Fundamental Side
Fundamental analysis uncovers some real opportunity for investors — a company with low forward P/E; a company with the renewable cash reserves to compete; a company with stable earnings and growth rates; and a company with enough products to grow revenues, expand product lines and increase sales.
Mylan isn’t a one-drug wonder. With more than 1,000 generic drug products alone, the company creates $400 million in cash per quarter (on average) and has nearly $1 billion in cash reserves for growth, research or acquisition.
Does it have that “pie in the sky” growth rate?
No, it doesn’t — and given the volatility in the stock market these days, investors should welcome this stable, cash-creating, consistent growth company to their portfolios.
While Mylan’s competitors are seen as potential 20% growth stocks per year, Mylan should trend along at 10%-14% per year for the next two to three years (patent loss issues could affect the stock in 2017).
Mylan is also a company widely held by institutional and mutual fund investors, with these large holders accounting for nearly 90% of shares outstanding — typically a bullish sign in the stock for the coming year. Institutions probably enjoy the forward P/E of 10.09 on Mylan against an industry standard that’s closer to 20.
What Investors Should Do
Mylan recently ran into its 52-week moving average and received the proverbial smackdown — courtesy, however, of the fiscal cliff.
That brings a New Year buying opportunity to investors, as Mylan appears to be reaching oversold territory on short term stochastic indicators but does remain overbought in medium-term indicators.
Investors should be able buy any pullback between $24-$27, and hold shares through the next year. Given the stability in generic drugs and the pipeline for new products coming online in 2013 could make for a 30% gain — meaning a price target of $35.
Rick Pendergraft is Editor of The Millionaire Blueprint, an innovative and patient investment strategy dedicated to helping investors turn $10,000 into $1,012,571. This is your private invitation to discover more about The Millionaire Blueprint. See how they’re doing it here. At the time of publication, Pendergraft did not own any securities mentioned in this column.
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