Top Picks Mid-Year Winners: John Reese

07/03/2015 10:00 am EST


John Reese

Founder and CEO, And Validea Capital Management

In January, MoneyShow asked all of the nation's leading advisors to select a favorite stock for 2015. In this special series of interviews we are talking with the five advisors who had the top performing stock picks as of mid-year. Here, we talk with John Reese, editor of Validea, to discuss a generic drug firm that has risen 36%.

Steven Halpern: Our guest today is John Reese, editor of Validea.  How are you today, John?

John Reese: Great!  Thank you, Steve.

Steven Halpern: Now, from more than 80 investment ideas featured in our top picks report in January, your selection of Lannett (LCI) was one of the five top performers, which is up now over 36%. Congratulations.

John Reese: Thank you.

Steven Halpern:  First, can you tell our listeners a little bit about the company and remind them of your original rationale for picking that stock?

John Reese:  Sure. The Lannett Company makes branded generic pharmaceuticals. They are a $2 million manufacturer; the original rationale was that they scored very highly on my Peter Lynch inspired strategy, as well as my Joel Greenblatt inspired strategy.

Steven Halpern:  Now what accounts for the strong gain since your original recommendation in January and perhaps you could share your updated outlook of the shares.

John Reese:  Certainly.  One, they had very strong earnings.  In the December quarter they were up 95%. In the March quarter they were up 56%.  Second, they acquired another company, another pharmaceutical company.  Third is, in general, biotech stocks have fared very well so far in 2015.  

That said, let me also say that it has been a roller coaster ride in terms of the price.  We were ultimately vindicated, but in April the company was up over 60% in terms of its performance, then it fell down to about 15%.

In other words, investors actually became slightly disillusioned—believe it or not—because revenues weren’t up quite as much as they expected.

And now it’s back up to 40% gain year to date.  We’re still projecting great returns from the company. It’s still favored by a combination of both our Peter Lynch and Joel Greenblatt strategies.

Steven Halpern:  Now, as you mentioned, this pick was based on the model you conduct of the Peter Lynch and Joel Greenblatt approach. Are there any other ideas based on these investment models that you might want to highlight for our listeners at the current time looking out over the course of the year.  

John Reese:  Yes, I have two stocks now that meet the criteria of both strategies. The first is Gilead Sciences (GILD); they are a $27 billion biotechnology firm...notice, there’s a little trend here.  

They have had major hits with HIV drugs and Hepatitis C drugs and have had a 48% compounded long-term earnings per share growth.  

The second company is CGI Technologies and Solutions (GIB) and they are and $8 billion sales firm with offices and sales across 40 countries.  

They are the world's fifth largest independent information technology and business process service company.  They have a 21% compounded long-term EPS growth rate.

Steven Halpern:  Again, our guest is John Reese of Validea.  Thank you for your time today.

John Reese:  Thank you, Steve.  

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