Lannett: Hot Stock, Hot Sector

03/09/2015 7:00 am EST

Focus: STOCKS

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

With the caveat that the market is overbought and I expect a pullback in coming weeks, my latest featured recommendation is a hot stock in a hot sector—a generic-drug maker—notes Nicholas Vardy, editor of Triple Digit Trader.

Lannett Co. (LCI), a Philadelphia-based firm, develops and manufactures medications for pain management and cardiovascular problems. Here's why.

First, Lannett is growing by leaps and bounds. The company has generated a remarkable five-year earnings per share growth rate of nearly 370%.

Analysts forecast that earnings will more than double in the company's fiscal 2015, which ends in June. Much of Lannett's earnings growth in 2014 was due to price increases.

By the middle of calendar 2014, the company had raised prices on roughly three-fourths of its products as consolidation in the generic-drug industry minimized competition.

Second, Lannett is actively on the hunt for potential acquisitions to expand its product range, extend its global reach, and lower its tax base.

Analysts believe that Lannett could easily do a $700 million to $1 billion deal. Importantly, Lannett executives revealed that they have undertaken two due diligence evaluations of potential acquisitions.

Any announcement of a deal is likely to help the stock to pop. In that sense, Lannett is as much an event-driven play as it is a bet on the company’s continued strong growth.

Lannett reported that its fiscal Q2 net income soared 170% from a year earlier to $44.8 million or $1.21 per share on a diluted basis, with sales climbing 71% to $114.8 million.

Management also raised sales guidance for the full fiscal year to between $395 million and $405 million from previous guidance of $370 million to $390 million.

Technically, Lannett’s stock broke out to new highs about two weeks ago and it is technically overbought. That said, it has settled a bit over the past three trading days, which improves the prospects of a better entry point.

I expect the stock’s recent surge to continue over the next few months, even if we have to endure a short-term pullback.

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