It Battles Evil Bacteria—and It's Cheap

12/07/2010 3:19 pm EST

Focus: STOCKS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Mark Skousen, editor of Forecasts and Strategies, recommends a drug maker with a remedy for the deadly bacterium plaguing hospitals and locker rooms.  

Huge election gains by Republicans on Capitol Hill assure us that the government won’t do more harm to the economy, and the Federal Reserve’s new inflation target means more profits for our rapidly growing portfolio.

We’re also benefiting from the Fed’s decision to inject $600 billion in new money into the banking system. The Fed’s action is unnecessary and mischievous, and will result in higher gold prices, an emerging markets boom, and a bubble in commodities.

It’s unnecessary because the global economy already is recovering. JPMorgan Chase reported that
factory orders in all G8 nations jumped sharply in October. Corporate profits are rising fast and beating expectations. And the money supply (M2) already is growing at an 8.6% rate. Why do more? The only negative is stubbornly high unemployment.

I wore my Halloween tie at the New Orleans Investment Conference and I asked a variety of experts what’s the scariest scenario they could think of. Well, fortunately, one such scenario has passed. September and October often can be the two scariest months on Wall Street, but not this time. Stocks rallied both months, despite dire warnings from my doomsayer friends.

One issue that could keep running is Cubist Pharmaceuticals (Nasdaq: CBST), which makes a life-saving treatment for MRSA (pronounced MUHR-sah), one of the world’s fastest-growing bacteria. It is an insidious super-bug that invades hospitals, emergency rooms, nursing homes, and even prisons, and has killed nearly 20,000 people recently. It is immune to most antibiotics.

Fortunately, Cubist Pharmaceuticals has a solution called Cubicin, a drug that treats blood infections. Cubicin already has been FDA-approved and is working its wonders on patients everywhere.

Because of Cubicin, revenues at Cubist rose 15% to $641 million last year, and earnings increased 23% to $102 million. Profit margins exceed 16%, and return on equity (ROE) is approaching 20%. Still, Cubist is selling for only 13 times current earnings, and could be a buyout candidate.

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