Two Growth Stocks for Any Business Climate 

11/04/2009 9:27 am EST

Focus: GLOBAL

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

These overachievers will do well no matter how the economic cycle plays out, write J. Royden Ward and Paul Goodwin of Cabot Wealth Advisory.

Health care reform will hopefully contain measures to reduce health care costs for all Americans. Drug costs are high, and one way to reduce the cost of prescription drugs is to promote the use of less expensive generic drugs. The largest generic drug company is Teva Pharmaceutical (Nasdaq: TEVA), which is developing new generic drugs at an amazing rate.

Teva Pharmaceutical, based in Israel, develops, manufactures, and markets generic and proprietary branded (store-brand) drugs. The company is the largest generic drug producing company in the world and, in addition, sells active ingredients to other pharmaceutical companies. 

Teva's largest selling generic drug, Copaxone, is used to treat multiple sclerosis. The company's aggressive acquisition and product development programs are driving strong sales growth. TEVA recently purchased US-based Barr Pharmaceuticals for $7.5 billion. Barr is increasing Teva's generic drug sales significantly in the US and in parts of Europe. The acquisition is already producing higher profits than expected.

Teva's product pipeline is very strong with 198 new drug applications waiting for FDA approval, several of which could become blockbusters. We forecast earnings growth of 28% during the next 12 months. Teva's generic drug business is growing more rapidly because consumers around the globe are opting for lower priced generic drugs.

TEVA shares are very reasonably priced at 12.5 times forward EPS with a dividend yield of 1.1%. The company's sales will increase 18% and earnings per share growth will likely be close to 28% during the next 12 months and 17% in future years. TEVA is an unbelievable bargain. Buy now.

In hard times, people tighten their belts and curtail their buying. But some product lines resist the urge for tightening, and groceries is one of them. 

Companhia Brasileira de Distribuicao (NYSE: CBD) is the second largest retailer in Brazil, a giant chain of nearly 600 stores with about 66,000 employees. The company operates a number of different chains that target different demographics, including Pao de Acucar (high-end supermarkets), CompreBem, Extra Perto and Sendas (value supermarkets), Extra (hypermarkets, which put all classes of merchandise under one roof), Extra-Eletro (electronics and home appliances) and Extra Facil (convenience stores).

The chart for CBD is breathtakingly steady, rising from a late-February low of 22 to a recent high near 65, with only a couple of dips under the 25-day moving average to mar the advance. The company is benefiting from the steady growth of the Brazilian economy, which should only get stronger as preparations for the 2016 Olympics get underway.

CBD is fairly thinly traded (just 226,000 shares a day, on average) and the company will report earnings on November 4th, which will determine the stock's path for the immediate future. But it's been a genuine tractor, chugging higher for nearly eight months. It's certainly worth a look.

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