Market Features Stocks to Watch - SUG, ETE, WMB, PFE, MSFT, BIDU, XOM

Market Features 7 Stocks to Watch: Southern Union, Bidu



Add CommentStock quotes in this article:SUG, ETE, WMB, PFE, MSFT, BIDU, XOM inShare.
Foundations of Financial Markets and Institutions (4th Edition)

NEW YORK (TheStreet) -- Energy Transfer Equity(ETE) raised its offer to acquire natural gas company Southern Union(SUG) for about $5.1 billion in cash. Under the new deal, Southern Union shares are valued at $40 a share, higher than Energy Transfer's mid-June bid of $33 a share, and above a competing offer from Williams(WMB) of $39 a share.

More on SUG

Energy Transfer Partners Announces Agreement For 50% Interest In Citrus Corp., Owner Of Florida Gas TransmissionEnergy Transfer Lifts Southern Union Bid(Graphic: Business Wire)Market Activity

Baidu Inc.
BIDU Southern Union Co
SUG Pfizer Inc
PFE


The Forever Portfolio: How to Pick Stocks That You Can Hold for the Long Run
--------------------------------------------------------------------------------
TheStreet) -- With stocks in a slump -- the benchmark S&P 500 has fallen 5% from a peak two months ago -- individual investors are trying to figure out which companies may rebound because they offer value and which may continue their slide.


More on Mutual Fund Center

Bet on Insurers in Second Half, Investor Says3 Small Growth Funds With Steady ResultsMutual Fund Carries Built-In ProtectionMarket Activity

Intrepid Small Cap Fund
ICMAX CSG Systems International Inc.
CSGS Tellabs Incorporated
TLAB In this topsy-turvy world -- even hot-gadget maker Apple(AAPL) and defensive stalwart Exxon Mobil(XOM) are down -- emulating private-equity investors' approach to evaluating companies may be the smartest move.

Stocks are barely up so far in 2011 after two years of strong gains as higher commodity prices crimp corporate profits, consumer spending is lackluster amid high unemployment and the Federal Reserve is ending its second stimulus program this month. By focusing on corporate balance sheets and private-market valuations, investors may be able to navigate volatility in these summer months.


Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies [STOCKS FOR THE LONG RUN 4/E]




A stock's price isn't always indicative of value, and the difference between the two can lead to hefty profits, says Mark Travis, chief executive officer of Jacksonville, Florida-based Intrepid Capital Funds. One of his top picks is Tellabs(TLAB), a beaten-up communications-equipment maker that is among the worst performing stocks on the S&P 500 this year.

Travis tries to determine the price that a rational buyer, paying in cash, would offer to acquire a company. With companies holding a record amount of cash -- more than $2 trillion -- following Travis' strategy makes more sense today than ever. Many companies he follows are growing fast and generating a lot of cash, but retail investors know very little about them because they fly under Wall Street's radar.

The strategy also takes advantage of the recent mergers-and-acquisitions frenzy. Through May, there were 1,276 announced deals with a total value of $454 billion, a 39% increase over the same period in 2010, according to a report by advisory firm PricewaterhouseCoopers. U.S. M&A activity will "continue to pick up steadily through the balance of 2011," PwC says.

But after a two-year rally in equities since the March 2009 bottom, aided by the Fed's bond-purchasing programs that boosted asset prices, Travis says the challenge in finding takeover targets has been made tougher. "Higher prices don't mean more opportunity, but more risk," he says. "A lot of the businesses we found were closer to fair price."

That has pushed Travis to be defensive in his posture. He says he couldn't find many businesses that had characteristics that private-equity investors would like, namely an unlevered balance sheet, lots of cash generation and downside protection in the share price. As such, the Intrepid Small Cap Fund(ICMAX) had 34% of its $777 million in total assets in cash equivalents, as of March 31. The Intrepid Capital Fund(ICMBX), meanwhile, had 12% of its $345 million in cash equivalents at the end of the first quarter.

Travis says his firm was invested in one takeout that occurred in late March, and that he has started to find some companies that carry both merit and risk for investors who can stomach the investment. "To find something in this environment where prices are up 100% over the last 24 months, you're going to have to buy something that has some ugly characteristic to it or it wouldn't be cheap," he says.

While investors focus mainly on S&P 500 companies, Travis and Intrepid Capital tend to be buyers of small-cap stocks. Travis says smaller companies that generate cash consistently attract suitors, either larger companies in their industry or private-equity firms. If neither comes forward, Travis is happy knowing the investment will continue to grow as the company's cash builds up.

Stocks For The Long Run


Baidu(BIDU), China's biggest search engine by revenue, on Monday announced a partnership with Microsoft(MSFT) that would allow its users to see English-language search results generated by Bing, Microsoft's search engine. Microsoft shares were up 0.5% to $26.15 in premarket trading Tuesday and Baidu shares were rising 1% to $144.71.

Company Symbol Brokerage Firm Upgrade From To (Target)


Artio Global Investors ART Ticonderoga Sell Neutral

Constant Contact CTCT Dougherty & Company Sell Neutral

Constellation Energy CEG Wunderlich Hold Buy ($43.5)

Diamond Offshore DO FBR Capital Mkt Perform Outperform ($85)

Kodiak Oil & Gas KOG BMO Capital Markets Market Perform Outperform

Raymond James RJF Ticonderoga Neutral Buy ($37)
Company Symbol Brokerage Firm Upgrade From To (Target)


A.O. Smith AOS KeyBanc Capital Mkts Hold Buy ($47)

Actuant ATU UBS Neutral Buy ($31)

Ciena CIEN UBS Sell Neutral ($17.25)

First Solar FSLR Wunderlich Sell Hold ($125)

Monster Worldwide MWW UBS Neutral Buy

NetSpend NTSP Wedbush Neutral Outperform

Transocean RIG Morgan Keegan Mkt Perform Outperform ($75)

Company Symbol Brokerage Firm Upgrade From To (Target)


Banner BANR McAdams Wright Ragen Hold Buy ($20)

Boston Properties BXP Argus Hold Buy ($112)

China North East Petroleum NEP Rodman & Renshaw Mkt Perform Mkt Outperform ($5.5)

CME Group CME UBS Neutral Buy ($318)

Endo Pharm ENDP Standpoint Research Hold Buy ($55)

Noble Corp NE Morgan Keegan Mkt Perform Outperform ($48)

Regal Entertainment RGC Caris & Company Above Average Buy ($16)

Under Armour UA Stifel Nicolaus Hold Buy ($80)






--------------------------------------------------------------------------------



The initial cleanup along the oil-fouled Yellowstone River could be tested Tuesday as rising waters make it harder for Exxon Mobil(XOM) to get to areas damaged by the crude spilled from a company pipeline. Shares were down 0.5% to $81.60.





--------------------------------------------------------------------------------



A Pfizer(PFE) stop-smoking drug Chantix increases the risk of cardiovascular events such as heart attacks, according to researchers who analyzed multiple trials involving the drug. Shares were down 0.3% to $20.68

Company Symbol Brokerage Firm Upgrade From To (Target)


Aruba Networks ARUN Barclays Capital Equal Weight Overweight ($33)

Avago Tech AVGO Sterne Agee Neutral Buy

Career Education CECO FBR Capital Underperform Mkt Perform ($23)

Cyberonics CYBX WBB Securities Buy Strong Buy

Encore Energy ENP Robert W. Baird Neutral Outperform ($25)

Enersys ENS Ardour Capital Accumulate Buy ($42)

GeoResources GEOI Global Hunter Securities Neutral Accumulate

Kodiak Oil & Gas KOG Global Hunter Securities Neutral Accumulate

Noble Corp NE FBR Capital Mkt Perform Outperform ($55)

TravelCenters of America TA Morgan Keegan Mkt Perform Outperform ($8)

Ultra Petroleum UPL CapitalOne southcoast Neutral Add ($56)

Under Armour UA Longbow Neutral Buy ($82)







Whiting Petroleum WLL Global Hunter Securities Neutral Accumulate

No. Symbol Company name Overall rating Core rating Last Change %Change Volume Market cap. P/E Dividend Dividend yield 6 mo expected return Market cap. market prefs Sector market prefs Growth/value market prefs Fundamental grade Valuation grade Technical grade Ownership grade
The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New

Irrational Exuberance


1 AEIS Advanced Energy Industries Inc 6 8 15.02 0.00 0.00% 0 654.23 Mil 9.80 0.00 0.00% 7.12% Neutral Neutral Neutral A C B D

2 ALKS Alkermes Inc 6 8 19.04 0.00 0.00% 0 1.82 Bil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral D B A C

3 ARO Aeropostale Inc 6 8 17.56 0.00 0.00% 0 1.42 Bil 7.90 0.00 0.00% 7.12% Neutral Neutral Neutral C A C C

4 BBVA Banco Bilbao Vizcaya Argentaria ADR Repstg 1 Ord Shs 6 8 12.13 0.14 1.18% 2,024 54.73 Bil 7.70 0.59 4.88% 7.12% Neutral Neutral N/A D B A C

5 BKI Buckeye Technologies Inc 6 8 27.79 0.00 0.00% 0 1.11 Bil 9.40 0.20 0.72% 7.12% Neutral Neutral Neutral D A A D

6 BPI Bridgepoint Education Inc 6 8 25.57 0.00 0.00% 0 1.35 Bil 10.00 0.00 0.00% 7.12% Neutral Neutral Neutral A C A F

7 CALX Calix Inc 6 8 21.46 0.00 0.00% 0 971.61 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral A B C D

8 CRZO Carrizo Oil & Gas Inc 6 8 42.02 0.00 0.00% 0 1.64 Bil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral C B A D

9 CSFL CenterState Banks Inc 6 8 6.90 0.00 0.00% 0 207.24 Mil 0.00 0.04 0.58% 7.12% Neutral Neutral Neutral A B D C

10 ENTG Entegris Inc 6 8 10.44 0.00 0.00% 0 1.40 Bil 14.40 0.00 0.00% 7.12% Neutral Neutral Neutral A D A C

11 FR First Industrial Realty Trust Inc 6 8 11.69 0.00 0.00% 0 1.01 Bil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral C B B C

12 FSYS Fuel Systems Solutions Inc 6 8 25.27 0.00 0.00% 0 504.75 Mil 37.20 0.00 0.00% 7.12% Neutral In favor Neutral B B C C

13 GEOI GeoResources Inc 6 8 23.16 0.00 0.00% 0 589.65 Mil 20.80 0.00 0.00% 7.12% Neutral Neutral Neutral C B C A

14 HWD Harry Winston Diamond Corp 6 8 16.42 0.00 0.00% 0 1.40 Bil 31.10 0.00 0.00% 7.12% Neutral Neutral Neutral B C B

15 ISRL Isramco Inc 6 8 66.10 0.00 0.00% 0 179.64 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral C B B

16 LCRY Lecroy Corp 6 8 12.48 0.00 0.00% 0 204.64 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral A C C C

17 LNN Lindsay Corp 6 8 70.39 0.00 0.00% 0 884.01 Mil 24.20 0.34 0.48% 7.12% Neutral Neutral Neutral B C B C

18 MCHX Marchex Inc 6 8 9.07 0.00 0.00% 0 337.00 Mil 0.00 0.08 0.88% 7.12% Neutral Neutral Neutral A B D C

19 MDCO Medicines Co 6 8 16.84 0.00 0.00% 0 907.49 Mil 7.60 0.00 0.00% 7.12% Neutral Neutral Neutral C A C C

20 MITI Micromet Inc 6 8 5.78 0.00 0.00% 800 529.05 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral A B D C

21 NEWP Newport Corp 6 8 18.28 0.00 0.00% 0 684.85 Mil 12.30 0.00 0.00% 7.12% Neutral Neutral Neutral A B D C

Mutual funds and the evolving long-run effects of stock wealth on U.S. consumption [An article from: Journal of Economics and Business]
22 NFLX Netflix Inc 6 8 267.99 0.00 0.00% 0 14.07 Bil 76.90 0.00 0.00% 7.12% Neutral Neutral Neutral A B B D

23 NKBP China Nuokang Bio Pharmaceutical Inc 6 8 4.74 0.00 0.00% 0 95.69 Mil 15.20 0.00 0.00% 7.12% Out of favor Neutral Neutral C A C

24 NTRI NutriSystem Inc 6 8 14.14 0.00 0.00% 0 381.11 Mil 16.70 0.70 4.95% 7.12% Neutral Neutral Neutral A D B C

25 OBCI Ocean Bio-Chem Inc 6 8 3.65 0.00 0.00% 0 28.66 Mil 13.60 0.00 0.00% 7.12% Out of favor Neutral Neutral C C A

26 PAET PAETEC Holding Corp 6 8 4.74 0.00 0.00% 0 687.66 Mil 0.00 0.00 0.00% 7.12% Neutral In favor Neutral B D A C

27 PNFP Pinnacle Financial Partners Inc 6 8 15.67 0.00 0.00% 0 534.92 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral A B D C

28 PRO Pros Holdings Inc 6 8 17.33 0.00 0.00% 0 464.07 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral D A B C

29 RTEC Rudolph Technologies Inc 6 8 10.79 0.00 0.00% 0 341.52 Mil 10.80 0.00 0.00% 7.12% Neutral Neutral Neutral B A C D

30 SGMS Scientific Games Corp 6 8 10.39 0.00 0.00% 0 956.56 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral D C B A

31 SNMX Senomyx Inc 6 8 5.82 0.00 0.00% 0 230.31 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral B B B D

32 SSRX 3SBio Inc 6 8 18.49 0.00 0.00% 0 410.05 Mil 34.60 0.00 0.00% 7.12% Neutral Neutral Neutral D B A C

33 STXS Stereotaxis Inc 6 8 3.57 0.00 0.00% 0 197.55 Mil 0.00 0.00 0.00% 7.12% Neutral Neutral Neutral C B B C

34 THOR Thoratec Corp 6 8 33.63 0.00 0.00% 0 1.92 Bil 32.60 0.00 0.00% 7.12% Neutral Neutral Neutral C A C C

35 TNDM Neutral Tandem Inc 6 8 17.39 0.00 0.00% 0 598.93 Mil 18.00 0.00 0.00% 7.12% Neutral Neutral Neutral C C A C

36 VSH Vishay Intertechnology Inc 6 8 15.70 0.00 0.00% 0 2.60 Bil 7.50 0.00 0.00% 7.12% Neutral Neutral Neutral C B B C

37 ABR Arbor Realty Trust Inc 6 7 4.79 0.00 0.00% 0 121.87 Mil 1.50 0.00 0.00% 6.43% Neutral Neutral Neutral A C D

38 AMRI Albany Molecular Research Inc 6 7 4.81 0.00 0.00% 0 145.80 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral A D C C

39 ANEN Anaren Inc 6 7 21.56 0.00 0.00% 0 325.92 Mil 19.80 0.00 0.00% 6.43% Neutral Neutral Neutral C D A C

40 ARBA Ariba Inc 6 7 34.86 0.00 0.00% 0 3.37 Bil 208.50 0.00 0.00% 6.43% Neutral Neutral Neutral B A F

41 ARRY Array Biopharma Incorporated 6 7 2.31 0.00 0.00% 0 131.72 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral B B D C

42 ATNI Atlantic Tele-Network Inc 6 7 38.14 0.00 0.00% 0 587.09 Mil 15.20 0.88 2.31% 6.43% Neutral In favor Neutral C B C

43 ATRC AtriCure Inc 6 7 12.96 0.00 0.00% 0 208.28 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral D B B

44 AVID Avid Technology Inc 6 7 19.40 0.00 0.00% 0 745.41 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral C C B C

45 BBBB Blackboard Inc 6 7 44.17 0.00 0.00% 400 1.55 Bil 186.60 0.00 0.00% 6.43% Neutral Neutral Neutral B C C

46 BEE Strategic Hotels & Resorts Inc 6 7 7.25 0.00 0.00% 0 1.27 Bil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral C D A

47 BEST Shiner International Inc 6 7 0.84 0.00 0.00% 0 23.13 Mil 5.00 0.00 0.00% 6.43% Out of favor Neutral Neutral A B F

48 BKBK Britton & Koontz Capital Corp 6 7 12.85 0.00 0.00% 0 27.53 Mil 11.30 0.72 5.60% 6.43% Out of favor Neutral Neutral B C C

49 BUCY Bucyrus International Inc 6 7 91.75 0.00 0.00% 0 7.47 Bil 22.40 0.10 0.11% 6.43% Neutral Neutral Neutral D A C C

50 BVN Compania de Minas Buenaventura SA

No. Symbol Company name Overall rating Core rating Last Change %Change Volume Market cap. P/E Dividend Dividend yield 6 mo expected return Market cap. market prefs Sector market prefs Growth/value market prefs Fundamental grade Valuation grade Technical grade Ownership grade


51 CCE Coca-Cola Enterprises Inc 6 7 29.81 0.00 0.00% 0 9.69 Bil 16.60 0.52 1.74% 6.43% Neutral Neutral Neutral C D A C

52 CGI Celadon Group Inc 6 7 14.34 0.00 0.00% 0 322.89 Mil 27.00 0.00 0.00% 6.43% Neutral Neutral Neutral B C C C

53 CGX Consolidated Graphics Inc 6 7 55.54 0.00 0.00% 0 614.51 Mil 15.60 0.00 0.00% 6.43% Neutral Neutral Neutral A D C C

54 CNGL China Nutrifruit Group Ltd 6 7 1.85 0.00 0.00% 0 68.29 Mil 3.10 0.00 0.00% 6.43% Out of favor Neutral Neutral B B D C

55 COHU Cohu Inc 6 7 13.24 0.00 0.00% 0 318.32 Mil 10.60 0.24 1.81% 6.43% Neutral Neutral Neutral B C C C

56 CRY CryoLife Inc 6 7 5.60 0.00 0.00% 0 156.42 Mil 43.40 0.00 0.00% 6.43% Neutral Neutral Neutral C C B C

57 DDIC DDi Corp 6 7 9.57 0.00 0.00% 0 194.10 Mil 9.10 0.40 4.18% 6.43% Neutral Neutral Neutral C C B C

58 DK Delek US Hldg Inc 6 7 15.76 0.00 0.00% 0 910.53 Mil 0.00 0.15 0.95% 6.43% Neutral Neutral Neutral B F A C

59 EGY VAALCO Energy Inc 6 7 6.15 0.00 0.00% 0 350.66 Mil 8.30 0.00 0.00% 6.43% Neutral Neutral Neutral A C D C

60 EPM Evolution Petroleum Co Rp 6 7 7.05 0.00 0.00% 0 194.26 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral C A D

61 EQU Equal Energy Ltd 6 7 6.88 0.00 0.00% 0 235.43 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral C B C C

62 EXPR E Express Inc 6 7 21.97 0.00 0.00% 0 1.95 Bil 14.80 0.00 0.00% 6.43% Neutral Neutral Neutral C C B C

63 FBMI Firstbank Corp (Alma, Michigan) 6 7 5.90 0.00 0.00% 0 46.22 Mil 17.30 0.04 0.68% 6.43% Out of favor Neutral Neutral A D C

64 FFCH First Financial Hldg Inc 6 7 9.02 0.00 0.00% 0 149.07 Mil 0.00 0.20 2.22% 6.43% Neutral Neutral Neutral A D C C

65 FLL Full House Resorts Inc 6 7 3.28 0.00 0.00% 0 59.08 Mil 8.10 0.00 0.00% 6.43% Out of favor Neutral Neutral D A C

66 GGB Gerdau SA ADR Representing 1 Pref Shs 6 7 10.85 0.00 0.00% 0 18.05 Bil 11.20 0.07 0.69% 6.43% Neutral Neutral Neutral B B D C

67 GSM Globe Specialty Metals Inc 6 7 23.54 0.00 0.00% 0 1.77 Bil 41.10 0.15 0.64% 6.43% Neutral Neutral Neutral B D B C

68 HGSH China Hgs Real Estate Inc 6 7 2.30 0.00 0.00% 0 103.62 Mil 5.10 0.00 0.00% 6.43% Neutral Neutral Neutral A D

69 HMY Harmony Gold Mining ADR Representing 1 Ord Shs 6 7 12.81 0.00 0.00% 0 5.54 Bil 58.60 0.07 0.55% 6.43% Neutral Neutral Neutral C C B C

70 HOG Harley-Davidson Inc 6 7 42.09 0.00 0.00% 0 9.94 Bil 31.90 0.50 1.19% 6.43% Neutral In favor Neutral B F A C

71 HOS Hornbeck Offshore Services Inc 6 7 27.47 0.00 0.00% 0 710.62 Mil 30.30 0.00 0.00% 6.43% Neutral Neutral Neutral D C A C

72 HRB H and R Block Inc 6 7 16.31 0.00 0.00% 0 4.98 Bil 11.80 0.60 3.68% 6.43% Neutral Neutral Neutral C C B C

73 HTZ Hertz Global Holdings Inc 6 7 16.25 0.00 0.00% 0 6.76 Bil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral B C C C

74 IAG IAMGOLD Corp 6 7 18.44 0.00 0.00% 1,700 7.04 Bil 18.80 0.20 1.07% 6.43% Neutral Neutral Neutral D A C C

75 INWK Innerworkings Inc 6 7 8.66 0.00 0.00% 0 400.09 Mil 35.00 0.00 0.00% 6.43% Neutral Neutral Neutral B C C C

76 JMP JMP Group Inc 6 7 7.01 0.00 0.00% 0 154.81 Mil 14.80 0.10 1.43% 6.43% Neutral Neutral Neutral C C B C

77 KEYN Keynote Systems Inc 6 7 21.44 0.00 0.00% 0 353.05 Mil 44.60 0.24 1.12% 6.43% Neutral Neutral Neutral B D B C

78 KWR Quaker Chemical Corp 6 7 43.48 0.00 0.00% 0 549.65 Mil 15.30 0.96 2.21% 6.43% Neutral Neutral Neutral C C B C

79 LAMR Lamar Advertising Co 6 7 28.53 0.00 0.00% 0 2.65 Bil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral B B D C

80 LMIA LMI Aerospace Inc 6 7 24.30 0.00 0.00% 0 294.56 Mil 21.30 0.00 0.00% 6.43% Neutral Neutral Neutral B D B C

81 LORL Loral Space and Communications Inc 6 7 70.65 0.00 0.00% 0 1.50 Bil 4.30 0.00 0.00% 6.43% Neutral Neutral Neutral D B B

82 NBN Northeast Bancorp 6 7 13.10 0.00 0.00% 0 43.38 Mil 0.00 0.36 2.75% 6.43% Out of favor Neutral Neutral C B C

83 PAM Pampa Energia ADR Repsg 25 Ord Shs 6 7 15.32 0.00 0.00% 0 966.06 Mil 0.00 0.09 0.56% 6.43% Out of favor In favor N/A A D C C

84 PDFS PDF Solutions Inc 6 7 6.21 0.00 0.00% 0 174.52 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral D B B C

85 PEI Pennsylvania Real Estate Investment Trust 6 7 15.79 0.00 0.00% 0 878.68 Mil 0.00 0.60 3.80% 6.43% Neutral Neutral Neutral C B C C

86 PHX Panhandle Oil and Gas Inc 6 7 31.92 0.00 0.00% 0 263.83 Mil 34.50 0.28 0.88% 6.43% Neutral Neutral Neutral C D A C

87 PIKE Pike Electric Corp 6 7 9.15 0.00 0.00% 0 307.91 Mil 0.00 0.00 0.00% 6.43% Neutral In favor Neutral A D C C

88 POWR Powersecure International Inc 6 7 7.19 0.00 0.00% 0 135.41 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral C B C C

89 POZN POZEN Inc 6 7 4.46 0.00 0.00% 0 133.37 Mil 6.70 0.00 0.00% 6.43% Neutral Neutral Neutral B A F C

90 PRCP Perceptron Inc 6 7 6.30 0.00 0.00% 0 54.57 Mil 31.30 0.00 0.00% 6.43% Out of favor Neutral Neutral B C C C

91 RBCAA Republic Bancorp Inc 6 7 20.22 0.00 0.00% 0 423.36 Mil 4.60 0.62 3.05% 6.43% Neutral Neutral Neutral B B D C

92 RCKY Rocky Brands Inc 6 7 12.49 0.00 0.00% 0 93.55 Mil 10.50 0.00 0.00% 6.43% Out of favor Neutral Neutral A D C

93 RTIX Rti Biologics Inc 6 7 2.84 0.00 0.00% 0 156.65 Mil 0.00 0.00 0.00% 6.43% Neutral Neutral Neutral B C C C

94 SCR Simcere Pharmaceutical Group 6 7 10.09 0.00 0.00% 0 543.95 Mil 20.10 0.00 0.00% 6.43% Neutral Neutral Neutral B C C C

95 SCS Steelcase Inc 6 7 11.49 0.00 0.00% 0 1.51 Bil 39.20 0.24 2.09% 6.43% Neutral Neutral Neutral A C D C

96 SKS Saks Inc 6 7 11.41 0.00 0.00% 0 1.87 Bil 41.40 0.00 0.00% 6.43% Neutral Neutral Neutral A D C C

97 SMS Sims Metal Management ADR Representing 1 Ord Shs 6 7 19.05 0.00 0.00% 0 3.97 Bil 26.60 0.35 1.84% 6.43% Neutral Neutral Neutral C B

98 STMP Stamps.com Inc 6 7 13.46 0.00 0.00% 0 193.01 Mil 32.20 2.00 14.86% 6.43% Neutral Neutral Neutral C C B C

99 SUMR Summer Infant Inc 6 7 8.18 0.00 0.00% 0 142.93 Mil 22.60 0.00 0.00% 6.43% Neutral Neutral Neutral B C C C

100 TX Ternium SA

NEW YORK (TheStreet) -- Jim Cramer thinks the Capsugel sale is good for Pfizer stock, but may be a short term view.

NEW YORK (TheStreet) -- Jim Cramer thinks the Capsugel sale is good for Pfizer stock, but may be a short term view.

STOCK PICKS THAT YOU WILL GET 1000% RETURN

The following is a direct quote: "if they cant tell you what will go up 100% in a few days then motley fool are worthless and they suck at picking stocks."




I received that comment on one of my recent columns. Grammar issues aside, this type of get-rich-quick mentality scares the heck out of me.



Now, don't get me wrong. I enjoy stalking monster returns. Heck, I'll even reveal your best shot at snaring a 10-bagger a little later in this piece. But first, let me warn you against an investing mistake that leads to many a zero-bagger.



The warning

My worst investing decisions have involved three common elements:



•The allure of great upside.

•The "need" to act quickly.

•The lack of proper due diligence.

My visions of huge, unrealistic profits led to hasty decision-making, which led to losses. In other words, almost every time I've tried to swing out of my shoes to hit a home run, I've struck out.



To defend yourself against the kind of greed that leads to grief, put investing returns in perspective.



My critic earlier talked about 100% returns in just a few days. Let's think through that for a minute. If you started with $10,000 and made 100% gains every week, you'd be the richest person in the world -- surpassing Bill Gates' $40 billion -- in far less than six months.



I'll go one step further. Perhaps you're thinking of the huge gains we've had over the course of the last year. If you timed it right, you could have made more than 100% on Halliburton (NYSE: HAL) and Chesapeake Energy (NYSE: CHK), more than 150% on General Electric (NYSE: GE) and Alcoa (NYSE: AA), or more than 1,500% on Human Genome Sciences (Nasdaq: HGSI).



Although these are real returns some investors have achieved, they're not the sort of realistic earnings anyone can expect over the long term. You can't extrapolate Usain Bolt's 100-meter times to conclude that he could run a marathon in 70 minutes. Similarly, even the best investors can't generate 100% returns year after year.



What's the upper limit of reasonable?

Peter Lynch is recognized as one of the greatest investors of all time. He ran his Fidelity Magellan Fund from 1977 to 1990 -- less than 15 years, during one hell of a bull market. Even in those perfect conditions, he "only" averaged 29% annual returns.



If you're wondering about Warren Buffett, his returns are lower than Lynch's. If you got in on his company, Berkshire Hathaway, in 1965, you'd have generated average annual returns in the neighborhood of 20%.



Now, because of the power of compounding for 45 years, those returns are tremendous. A $10,000 investment back then would leave you a millionaire many times over.



Believing you can do much better than the 20% to 30% long-term annual returns of Lynch and Buffett is almost surely a road to overconfidence and failure. Doing half of what they did would make you a very, very rich investor.



Your best shot at a 10-bagger

Now that we're grounded in reality, let's talk about what it takes to snag a 10-bagger in 10 years, while limiting your risk.



For a stock to be worth 10 times its buy-in price in 10 years requires a 26% annual return. As the returns of Lynch and Buffett attest, that's huge!



Going after that kind of return, even in an individual stock, isn't for everyone. You have to have a mighty risk tolerance. That's why most people are best served allocating among index funds or ETFs, and holding for the long haul. In fact, I believe everyone this side of Buffett and Lynch should index at the core of their portfolios.



But for those of us who want to pick some individual stocks and go after a 10-bagger or two, small-cap stocks (i.e., stocks with market caps of $2 billion or less) are our best shot.



Large-cap stocks like Cisco (Nasdaq: CSCO) ($139 billion market cap) and Pfizer (NYSE: PFE) ($142 billion market cap) simply don't have the room to grow that their $2-billion-and-under brethren do. Now, large caps have their place in your portfolio, but that place isn't in the area dedicated to the 10-bagger.



To maximize your chances of achieving a 10-bagger in 10 years without throwing Hail Marys, focus on smaller companies that have:



•Strong balance sheets.

•Strong cash flows.

•Strong growth prospects.

Our small-cap experts at Hidden Gems have recommended Dynamic Materials, a maker of explosion-welded clad metal plates, to their members. This stock is a good place to start your 10-bagger research. To see the Hidden Gems team's entire write-up on Dynamic Materials, and the rest of their recommendations, click here for a free 30-day trial.



Anand Chokkavelu owns shares of Pfizer and Halliburton. He made a 100% return in just two days once: The sweater didn't fit, and he got store credit. Chesapeake Energy and Pfizer are Motley Fool Inside Value recommendations. The Fool owns shares of Chesapeake Energy
MOTLYFOOL.COM

My Best Stock Picks For 2009

1. Lowe's Companies ( LOW ) 21.52 a share 1/1/2009 Target price 35.00 a share.
Lowe’s Companies, Inc. is a home improvement retailer, with specific emphasis on retail do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers, who utilize its installation services, and commercial business customers. The Company offers a line of products and services for home decorating, maintenance, repair, remodeling and property maintenance. As of February 1, 2008, it operated 1,534 stores in 50 states and Canada, with 174 million square feet of retail selling space. Lowe’s Companies, Inc. serves homeowners, renters and commercial business customers. Homeowners and renters primarily consist of do-it-yourselves, and others buying for personal and family use. Commercial business customers include repair and remodeling contractors, electricians, landscapers, painters, plumbers, and commercial and residential property maintenance professionals, among others . The latest existing home sales report from the National Association of Realtors showed an increase of 3.1% over the previous month with sales rising to about 5 million units a year annualized. When the last twelve months of data is plotted, there’s a clear bottoming pattern being formed. The report also shows home prices continuing to fall and the inventory of unsold homes increasing. That’s bad news for sellers but good news for buyers since the increasing inventory should continue to put pressure on prices. The AP release listed on MSNBC.com includes this additional information, “Between 33 and 40 percent of sales activity is coming from foreclosures or other distressed properties, estimated Lawrence Yun, chief economist at the Realtors group.” If existing home sales have bottomed, it should be good news for home improvement retailers Home Depot (HD) and Lowes (LOW). The high percentage of sales coming from foreclosures should also be a positive for their business. I haven’t found any data to back this up, but it’s logical that on average a foreclosed home will need more repairs than an owner-to-owner purchase. Granted, logic doesn’t necessarily apply to the stock market.Both companies are profitable even in the current soft housing market. Valuations are similar with both companies trading at about 15.5 times the next 12 months earnings. Cramer did a head-to-head between HD and LOW on Wednesday’s Mad Money and concluded LOW was the better bargain primarily because of better growth prospects. One key difference between the companies is the dividend. HD yields about 3.3% vs about 1.4% for LOW. Obviously, Lowe’s has a much lower payout ratio so more of its earnings are available to invest in expansion. If home sales have bottomed, LOW and HD sales traffic should start increasing, particularly with a high percentage of sales and housing inventory coming from foreclosures. Both companies should benefit from easy same-store-sales comparisons going forward. Analysts’ earnings estimates for both companies have been lowered over the past 90 days. I think that’s a mistake. Cramer based his opinion of the two stocks partly on his prediction that new home sales will start improving late next year. I suspect many analysts are also considering new home sales for their models. They may be overlooking stabilizing and improving existing home sales volume (not necessarily prices) providing a lift to home improvement centers. I believe LOW is a slightly better buy than HD based on better growth prospects and a lower debt ratio. The higher dividend makes HD attractive to income investors and should provide more support to the share price if the thesis is wrong; the dividend is comfortably covered so there isn’t much chance of a cut. If stabilizing home sales drive an increase in traffic, both companies should benefit.Two words CUSTOMER SERVICE! Although HD is geographically closer to my home, I prefer Lowes. The product mix and prices are similar but, Lowes has people that can answer questions and assist the customer, and they even have humans at the cash registers.Cash on hand and cash flow can handle required debt payments. People will continue to maintain and improve their homes as they spend less on other non-essentials .

2. The Kroger Co. ( KR ) 26.25 a share 1/1/2009 , Target price 39.00.
The Kroger Co. is a retailer in the United States. The Company also manufactures and processes some of the food for sale in its supermarkets. As of February 2, 2008, the Company operated, either directly or through its subsidiaries, 2,486 supermarkets and multi-department stores, 696 of which had fuel centers. Approximately 43% of these supermarkets were operated in Company-owned facilities, including some Company-owned buildings on leased land. It operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the United States. The Company operated 42 manufacturing plants, primarily bakeries and dairies, which supply approximately 43% of the corporate brand units sold in the retail outlets. Ultra-solid grocer with a strong private brand and good real estate management.
Safe harbor.If you paid attention when you were shopping you've noticed the sharp jump in grocery prices that coincided with the rise in fuel prices. Now that fuel prices have fallen, it is equally as noticeable that the price of groceries and consumer goods hasn't. This means higher profits for Grocery stores in the near term. With an uncertain economy and high gas prices, consumers are pinching pennies wherever they can, and that includes doing things like buying Kroger brand soup or Kroger brand milk instead of Campbell's Soup or Trauth milk. This penny pinching will continue into the foreseeable future because shoppers aren't going to pay higher prices when they can get the same thing for less. This is a definite buy for 2009 .

3. AeroVironment 36.80 a share 1/1/2009 , Target price 49.00.
AeroVironment, Inc. (AeroVironment) designs, develops, produces and supports a portfolio of small unmanned aircraft systems (UAS) that it supplies primarily to organizations within the United States Department of Defense (DoD), and fast charge systems for electric industrial vehicle batteries that it supplies to commercial customers. AeroVironment derives the majority of its revenue from these two business areas. The Company's core technological capabilities include lightweight aerostructures and electric propulsion systems, electric energy systems and storage, high-density energy packaging, miniaturization, controls integration and systems engineering optimization. The Company is organized into two segments: UAS and Efficient Energy Systems, which focuses primarily on the development of electric energy technologies for internal and external customers, and also develops, produces and supports a line of electronic test equipment used for research and development activities.With cuts in defense spending likely, drones offer a cheaper alternative to full sized aircraft.I've been watching this stock go up since its IPO opening , and there is a little downturn now. With their drone business, Aerovironment is a good candidate for a buyout by the big boys. Drones are not going away -- the local air national guard changed to drones, and the Air Force secretary was fired for his slow adoption of the technology.

4. PowerShares Water Resources (ETF) ( PHO ) 14.39 a share 1/1/2009 target price 19.75
PowerShares Water Resources Portfolio (the Fund) seeks investment results that correspond generally to the price and yield of the equity index, the Palisades Water Index (the Index). The Index seeks to identify a group of companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to water consumption. The Index includes United States exchange traded companies drawn from water sectors, such as water utilities, treatment, analytical, infrastructure, water resource management and multi business.water - can't replace it can't get enough of it, enough said .world is going to get hungry due to a larger stomach and of course we will need water to wash it all down not to mention grow everything we eat in the first place. 1% of the worlds water is drinkable and our demand for that water double every 6-8yrs.With Obama's new public works stimulus should include some spending towards the aging water infrastructure, and this sector would definitely benefit from that !

5. Amazon.com ( AMZN ) 51.13 a share , target price 76.00
Amazon.com, Inc. (Amazon.com) operates retail Websites, which enables its consumer customers to find and discover anything they might want to buy online. The Company’s retail Websites include www.amazon.de, www.amazon.fr, www.amazon.co.jp, www.amazon.co.uk and the Joyo Amazon Websites at www.joyo.cn and www.amazon.cn. Amazon.com has organized its operations into two principal segments: North America and International. The North America segment includes Websites, such as www.amazon.com, www.amazon.ca, www.shopbop.com and www.endless.com. The International segment includes www.amazon.co.uk, www.amazon.de, www.amazon.co.jp and www.amazon.fr. In June 2008, the Company announced the acquisition of Fabric.com, an online fabric store that offers custom measured and cut fabrics, as well as patterns, sewing tools and accessories.Good earnings growth. I have made several purchases from their site, and they have one of the most user-friendly and convenient marketplaces on the web. I get what I want on time and at competitive prices. They seem well positioned to profit from Internet shopping. This isn't a massive growth stock.Upside is that it is growing right through the recession. Nevertheless, this has to be a long-range investment. I plan to add to my investment in modest increments over a substantial period of time.

6. Molson Coors Brewing Company ( TAP ) 48.92 a share, target price 71.00
Molson Coors Brewing Company (MCBC) is a global brewer of beers. The Company’s subsidiaries include Molson Canada (Molson), Coors Brewing Company (CBC), Coors Brewers Limited (CBL), and other corporate entities. The segments of the Company include Canada, the United States and Europe. The brands sold in Canada include Coors Light, Molson Canadian, Molson Dry, Molson Export, Creemore Springs, Rickard's Red Ale, Carling and Pilsner. The brands sold in the United States include Coors Light, Coors, Coors Non-Alcoholic, Blue Moon Belgian White Ale and Blue Moon brands, George Killian's Irish Red? Lager, Keystone, Keystone Light, Keystone Ice and Zima.I'm not a drinker, but in times like these I'll make an exception. a case of 24 for $15 exception.Solid financials. Cash on hand. Great products. Cheap stock price.With recession on the horizon, this is a great hedge against it. With the overall market going down, TAP may go down too, but not nearly as much. Therefore, it will outperform. TAP pays a .20 Dividend.

7. Verizon Communications ( VZ ) 33.90 a share 1/1/2009 , target price 49.00.
Verizon Communications Inc. (Verizon) is engaged in providing communication services. The two segments of the Company are Wireline and Domestic Wireless. Wireline communications services include voice, Internet access, broadband video and data, next generation Internet protocol (IP) network services, network access, long distance and other services. The Company provides these services to consumers, carriers, businesses and government customers both domestically and internationally in 150 countries. Domestic Wireless’s products and services include wireless voice, data products and other services, and equipment sales across the United States. In March 2008, Verizon announced the completion of the spin-off of Northern New England Spinco Inc. In July 2008, MTN Group Limited acquired 100% of Verizon South Africa Ltd. In August 2008, Verizon announced that Verizon Wireless, a joint venture of the Company and Vodafone Group Plc, had completed its purchase of Rural Cellular Corporation.I just switched to FIOS so now VZ do all my telecom ( winches, ISP, TV) and it rocks! l don't see the cable co's keeping customers from switching .I like both T and VZ for their dividend; but I like VZ more for it's dividend. For now in tough times Utilities are king, VZ is set to continue giving steady returns.They pay a reasonable dividend and are a cash vacuum !

8. Johnson & Johnson ( JNJ ) 59.70 a share , target price 69.50
Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. Johnson & Johnson has more than 250 operating companies. The Company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. Sales of the Company's two largest products.Long term, solid company. A vast stable of staples, products that consumers will want and need to buy regardless of the recession/depression. It's hard to imagine any company as being recession-proof, but I think Johnson & Johnson comes very close to that wishful ideal. During the recession of 1992-1993, it lost about 20% of its value, but other companies lost much more. During the gloomy times of mid-2001 through 2003, it traded sideways while most other large-cap companies lost money. It currently has nice profit a 6.4 quarterly revenue growth with a 29.9% quarterly earnings growth. Very nice. Hopefully, that will continue. For a large cap, it also seems to have its debt load under control, something that will separate the strong from the weak in the coming months. To wit, JNJ's Debt/Equity ratio is 32%, and has a book value of $16.45/share, which is twice better than my internal yardstick of 1/7th that of its price (currently $58.70). While we wait for the stock to appreciate, the dividend yield will help us out a bit at its current 5-year average of 2.1% (hey, it's not great, but it's there!). Finally, very few people are going against this stock, as the short interest is extremely low at only 0.80% of the float (yep, less than 1% -- nice & stable). This would be a good place to park your money for the next 1-3 years.

9. Pfizer Inc ( PFE ) 17.71 a share 1/1/2009 , target price 24.00
Pfizer Inc. (Pfizer) is a research-based, global pharmaceutical company. The Company discovers, develops, manufactures and markets prescription medicines for humans and animals. It operates in two business segments: Pharmaceutical and Animal Health. The Company also operates several other businesses, including the manufacture of gelatin capsules, contract manufacturing and bulk pharmaceutical chemicals.PFE is a cash cow, easily a $25 stock and with a rally in the market, PFE is set to go higher.PFE will likely outperform the S&P 500 for the near future simply because the recession hurts others more than it hurts this company. Also the incoming Obama administration favors health care reform, which although could dampen some healthcare sector stocks, will not likely have much direct effect on R&D or capsule manufacturing. Although the cost of medicine is high in some cases, it is tiny when compared to all other medical costs as a whole. High medicine costs are usually pass-on costs but, Obama will likely encourage more R&D, and the government will favor this sector in subsidies. Baby boomers keep on retiring in ever growing numbers and they need medications… there is an ever growing demand for the products of the company over the long term, recession or not .

10. Google ( GOOG ) 307.00 A share 1/1/2009 , Target price 355.00
Google Inc. maintains an index of Websites and other online content, and makes this information freely available to anyone with an Internet connection. The Company’s automated search technology helps people obtain nearly instant access to relevant information from its online index. Google generates revenue primarily by delivering online advertising. Businesses use its AdWords program to promote their products and services with targeted advertising. In addition, the thousands of third-party Websites that comprise the Google Network use its AdSense program to deliver relevant ads that generate revenue and enhance the user experience.Long term play, good value, buying at a discount. Will rebound powerfully when the global economy improves in the coming years.Google is becoming the Top search and work engine in the world including in Peru South America. Besides the ever growing Pay Per Click business model, Google will eventually open up a Pay per call model (google both these items to learn about them). Pay Per Call is still a very lucrative industry and is expected to grow incredibly over the next five to ten years (google search will lead you to this information as well, as would yahoo or microsoft or whatever search you use, but i'm making a pseudo-subliminal point by saying 'google it'.)Beyond advertising, Google's dark horse will be cloud computing in my opinion. It will save companies thousands upon thousands of dollars in that they wont have to purchase on site storage of information, it is stored elsewhere. Computer security can also be cut back. Network administration can also be cut back. All this money that will be saved can now be thrown at various other optimizations (or just added to a bottom line). Cloud computing is Google's oft misunderstood, nary a mentioned monster. Its most recent deal with IBM will show this as a rapidly growing income stream. With Cloud computing, the bearish sentiment on the possible failures of online advertising will quickly have to brainstorm new critiques of what will become a vast lucrative market. What about Google's Android? It seems a fight may be brewing with Verizon and the FCC over definition of terms, but if the OS is as easy to ingest as google's website itself, I can only see upward motion in its future.

11. Altria ( MO ) 15.05 a share 1/1/2009 , target price 24.50
Altria Group, Inc. (ALG) is the holding company of Philip Morris USA Inc. (PM USA) and John Middleton, Inc., which are engaged in the manufacture and sale of cigarettes and other tobacco products. Philip Morris Capital Corporation (PMCC), another wholly owned subsidiary, maintains a portfolio of leveraged and direct finance leases. In addition, at December 31, 2007, ALG held a 28.6% economic and voting interest in SABMiller plc (SABMiller), which is engaged in the manufacture and sale of various beer products. The Company’s segments are U.S. tobacco; European Union; Eastern Europe, Middle East and Africa; Asia; Latin America, and Financial Services. In March 2008, the Company completed the spin-off of Philip Morris International Inc., a wholly owned subsidiary. On December 11, 2007, ALG acquired 100% of John Middleton, Inc., a manufacturer of machine-made large cigar .Incredible dividend, controls majority of tobacco products in America, also has a stake in SABMiller. The only reason I don't have real money invested in this one is because the gov. is clamping down on smokers and will become even more strict in the future. With the way things are going, smoking could become illegal within 20 years. This is why I think PM is a better growth play because it focuses on countries whose govs don't mind if their citizens smoke themselves to death (i.e. China, South Korea, Japan, Russia, etc). In the near term the stock will outperform the market, but in the long term its performance will depend on how healthy or unhealthy Americans choose to live and gov regulations. I forecast a diminishing number of Americans choosing to pick up this bad habit in the long term .Great company, great management, great lawyers, great dividend. Only problem is they sell a product people have a strong opinion on. Will be a strong performer for years to come .. Many people will miss this one just because it is a sin stock. However, when times get hard to is a proven fact that PEOPLE smoke consume more alcohol, Even people that have stopped for long periods start back to smoking. It is one of those things that take your mind off of the here and now for 6 minutes. After the 9-11 devastation, their sales went up.

What are your thoughts on the 2009 top stock picks ??

Biotech Takeover candidates

Consolidation among biotechs will become more common as Big Pharma tries to fatten its product pipeline. Five possible takeover candidates

THE OUTCOME OF Bristol-Myers Squibb's $4.5 billion bid for the portion of ImClone Systems that it doesn't already own remains uncertain. So is the conclusion of Roche Holding 's $44 billion offer for the shares of Genentech that it doesn't possess. Both targets want the bids raised.
But one thing is certain: Mergers, buyouts and takeovers involving biotech outfits will become more common as Big Pharma increasingly tries to fatten its product pipeline by acquiring proven, as well as promising, bioengineered drugs.
Table: In the Pipeline
For Bristol (ticker: BMY), the big prize is Erbitux, an ImClone (IMCL) cancer treatment. For Roche (RO.Switzerland), the lure is a raft of Genentech (DNA) products, ranging from Activase, a heart-attack treatment, to Avastin, a cancer drug, to Nutropin, a growth-hormone product.
DRIVING THE NEED FOR new products are the coming expirations of patents on several important drugs owned by Big Pharma. The end of patent protection, of course, opens the market to cheaper generic versions of the drugs.
In the not-very-distant future, the mother of all expirations will hit Lipitor, Pfizer 's (PFE) wildly successful cholesterol drug, which had more than $12 billion in annual global sales last year. Lipitor goes off-patent in 2011. Other blockbuster drugs that are losing their patent protection include Wyeth 's (WYE) Effexor (depression and anxiety), 2010; Merck 's (MRK) Singulair (allergies), 2012; and Eli Lilly 's (LLY) Zyprexa (schizophrenia), 2011.
Many of the large drug manufacturers "have three or four products accounting for the bulk of earnings," notes Christopher Schott, a pharmaceutical analyst at JPMorgan.
At the same time, these companies' costly research-and-development efforts have had mixed results. Despite Big Pharma's spending billions and billions, says Jay Markowitz, a T. Rowe Price health-care analyst, "a number of companies are facing a significant patent cliff, where billions in revenues are going to disappear."
Many large pharmaceutical outfits, however, have a lot of cash on their balance sheets to make acquisitions. Factor in the dollar's weakness, which makes U.S. companies look particularly enticing to foreigners, and the biotechnology/pharmaceuticals market looks particularly ripe for merger-and-acquisition deals.
"The natural synergy is for a company to acquire a company they already know well and have a partnership with on a key drug," says Steven Silver, an analyst at Standard & Poor's.
For example, Genentech, which last week rejected Roche's $89-a-share proposal as too low, has a long history of dealings with the Swiss pharmaceutical giant, which has about a 56% stake in the San Francisco biotech firm and markets some of its products.
"The larger pharma companies want to have total control over the drugs in the pipelines," says Frank Sustersic, a portfolio manager at Turner Investment Partners. In 2007, for example, Eli Lilly acquired Icos, with which it had a joint venture on Cialis, an erectile-dysfunction drug. It paid $2.3 billion for the acquisition.
"It looks as if pharma is going after the companies that have existing products," which by definition have obtained regulatory approval, says Vinay Thapar, a senior investment analyst at American Century Investments. (Larger companies will continue to do licensing agreements in which they pay a smaller company to help develop a drug, in exchange for a cut of future profits, says Thapar. In such cases, the larger entity doesn't typically acquire the smaller one.)
Thapar and other analysts point to Onyx Pharmaceuticals (ONXX) as a potential target of Bayer (BAY. Germany). Onyx has a joint venture with the German pharmaceutical giant for Nexavar, which is used to treat kidney and liver cancers.
"At some point, you could see Bayer wanting to control 100% of the assets," says Sustersic, who thinks that Bayer might pay as much as $65 per share. Nexavar is believed to have more upside, especially as it secures approval in other markets (it was recently given the green light by China as a liver-cancer treatment), and even more if it can be used for other cancers, including those of the breast, lungs and skin.
One argument for buying existing drugs -- rather than developing new ones -- is the grueling U.S. Food and Drug Administration testing that new products face.
"The FDA is perceived to have swung more to the safety side in the balance between safety and efficacy," says Markowitz. That means that getting drugs through the regulatory process is taking longer, although it's probably good for consumers. Adds Thapar: "The FDA is becoming increasingly difficult to handicap."
Big Pharma's hunger for new products could be good news for investors in some biotech firms, say Barron's Rich Rescigno and Lawrence Strauss. (Aug. 18)
NOT ALL OF THE FOCUS is on products already in the market, however. Vertex Pharmaceuticals (VRTX), another company that some investors view as an eventual takeover candidate, is developing Telaprevir, a substance that promises to reduce the time needed to treat hepatitis-C, a potentially fatal liver ailment. Telaprevir is currently in stage III testing, the last phase of the clinical- trial process. Vertex has worked with Johnson & Johnson (JNJ) in developing that drug.
Vertex's shares sold off recently after Schering-Plough (SGP) announced that it had good results with a possible competitor to Telaprevir. Still, some analysts think that the Vertex drug shouldn't be underestimated. "In my opinion, it will be the first direct antiviral drug for hepatitis-C to hit the market and meaningfully improve patient outcomes," says T. Rowe Price's Markowitz.
Another company that could spark an acquirer's interest is Amylin Pharmaceuticals (AMLN). It's working on a Type 2 diabetes drug that could be injected once a week instead of daily. Amylin has several development partners, including Eli Lilly, on the drug. It already markets two diabetes drugs, Symlin and Byetta. But some analysts say the product under development could boast major advantages. "A once-weekly drug that lowers glucose substantially, induces weight loss, isn't associated with hypoglycemia, and lacks a cardiovascular safety signal has multibillion-dollar potential," says Markowitz.
The Bottom Line:
With patents on some major products expiring over the next few years, large pharmaceutical companies will be on the prowl for biotech outfits with promising drugs.
Anyone scanning the biotech ranks for potential acquisition targets shouldn't overlook United Therapeutics (UTHR). It has one characteristic that lots of other small biotechs would envy: It's in the black. One of its most promising products is Remodulin, which is used to treat hypertension in the blood vessels of the lungs. Although there are other PAH drugs, Turner Investment Partners' Sustersic says that United Therapeutics is "one of the clear leaders, and they potentially could have a big blockbuster."
American Century's Thapar is similarly impressed by Alexion Pharmaceuticals (ALXN), which earned six cents a share in its most recent quarter, versus a loss of 75 cents a share a year earlier. Its drugs include Soliris, which treats a rare disorder called paroxysmal nocturnal hemoglobinuria, which destroys red blood cells.
At $389,000 a year per patient, Soliris is hugely expensive -- but it targets a clearly defined patient base.
The drug had net sales of nearly $60 million in the second quarter, up from $45.5 million in the first quarter and $9.8 million a year earlier. Regulators have approved its use in the U.S. and Europe, and it's expected to be introduced in Japan toward the end of next year. Alexion retains distribution rights in the U.S. and overseas, says Sustersic, who maintains that Soliris sales could reach at least $500 million a year.
Sounds like a decent prescription for a bigger company seeking a revenue boost.

Barrons.com