4 Top Stocks to Buy in 2014
Tap these pharmaceutical and auto plays for a quick jump in the new year
Now that the champagne is uncorked and the noisemakers are put away, we’re taking a look at a number of stocks to buy so you can get a jump on 2014.
Three of these four picks are riding the healthcare megatrend, benefiting from the overall increased use of medical supplies, as well as the continued move toward generic drugs. Meanwhile, the fourth is a great play on the resurgent auto industry.
Without further ado, here’s a look at four stocks to buy in 2014:
AmerisourceBergen (ABC) is riding the momentum of a strong fourth-quarter earnings announcement and 2014 guidance, which bodes well for ABC stock.
Compared with Q4 2012, sales increased 34% at its Drug Corporation unit and by 12% at its Specialty Group unit. Total revenue jumped 28% to $24.5 billion, topping the $23.96 billion consensus estimate.
Meanwhile, net income fell from $163.49 million to $51.02 million as ABC recorded a $154 million inventory charge and divested its AndersonBrecon and AmerisourceBergen Canada operations. However, excluding special items, adjusted earnings climbed 3% to 79 cents per share and topped the 75 cents consensus estimate by 5%.
ABC also has strong expectations for the next year. Looking ahead to 2014, AmerisourceBergen expects adjusted EPS in the range of $3.60 to $3.73 per share, meeting analyst estimates in the middle of the range. This amounts to earnings growth between 15% and 19% and revenue growth of 28% to 31%.
Valeant Pharmaceuticals (VRX)
Valeant Pharmaceuticals (VRX), a Canadian drugmaker, is making a splash in the eye health market now that it has bought out Bausch + Lomb. The deal is expected to be immediately accretive to earnings and should yield hundreds of millions in annual cost savings by the end of this year.
I consider now a great time to buy in the wake of third-quarter earnings. VRX did post a net loss of $973.2 million, or a loss of $2.92 per share. However, excluding special items, the company posted adjusted earnings of $486 million, or $1.43 per share, which beat the consensus earnings estimate by a penny. Meanwhile, total revenues jumped 74% year-over-year to $1.54 billion thanks to strong growth in Valeant’s dermatology prescription brands and its oral health portfolios.
When it comes to Valeant, my eyes are on the horizon. Looking ahead to full-year 2013, the company forecasts cash EPS in a range of $6.11 to $6.16. Total sales are expected to be $5.7 billion to $5.9 billion. This represents 61% to 66% annual sales growth and 35% to 37% earnings growth.
The integration of Bausch + Lomb is going according to schedule, and Valeant expects to realize $850 million (or more) in synergies. I consider VRX one of the strongest pharmaceutical stocks out there.
Actavis (ACT) is one of the world’s largest generic drugmakers. With a portfolio of over 190 pharmaceutical product families, Actavis has its name on everything from antibiotics to contraceptives to smoking cessation treatments.
ACT just posted strong quarterly results on the heels of successful launches of generic versions for Lidoderm, a topical patch for after-shingles pain, and Opana ER, a narcotic pain reliever. During the third quarter, the company also received FDA approval of a generic version of Lamictal ODT, a seizure medication.
Compared with Q3 2012, net revenue jumped 57% to $2.01 billion. Adjusted earnings per share advanced nearly 55% to $2.09 per share, meeting estimates.
Looking ahead, ACT expects Q4 adjusted earnings of $2.95 to $3.05 per share, well above the $2.26 Street view. For fiscal 2013, Actavis forecasts adjusted earnings between $9.26 and $9.39 per share, up from its previous range of $8.15 to $8.50 per share. The company also lifted its sales forecast to $8.6 billion from $8.1 billion. Analysts are calling for 2013 earnings of $8.35 per share of ACT stock on $8.08 billion in sales.
Magna International (MGA) is a leading supplier to the auto industry. Based in Ontario, Magna International provides services ranging from vehicle engineering and assembly to production of exterior trim and building interior door panels. Ford (F), General Motors (GM) and Toyota Motors (TM) are all long-time clients of Magna.
I like Magna because it is profiting from the rise in outsourcing and just-in-time manufacturing demands on the auto industry. And while Magna is based in Canada, it’s a global company that is largely immune to currency valuations that would otherwise hurt its competitiveness. That’s because MGA has the ability to transplant its manufacturing operators to the most competitive countries.
And then there’s profit potential. Magna International has been working overtime to revamp its business in Europe, and its efforts have paid off. Production sales to that region improved 18% year-over-year to $2.36 billion. Sales in North America advanced 11% and sales to the rest of the world jumped 16% over last year. So total sales rose 13% to $8.34 billion, topping analyst estimates of $8.23 billion.
MGA was hit with restructuring charges during the third quarter, so profit fell 18% year-over-year to $390 million, or $1.39 per share. Even so, that trumped the $1.34 EPS consensus estimate by 4%.
Looking ahead to full year 2013, Magna International has lifted the low end of its sales outlook to a range of $28.1 billion (up from $27.7 billion) to $28.7 billion.