House Democrats have an agenda... They intend to repeal a provision in the 2003
Medicare drug benefit law that prevents the government from being involved in
negotiations of prescription drug prices. This would essentially unravel
Medicare Part D as it’s known today.
Democrats believe this will lower prescription drug prices and be great for
America.
We couldn’t disagree more.
High drug costs and the pressure coming from Capitol Hill to reduce them that
led to one of our main investment themes of 2007…
My colleague, Craig Walters, has found a company that could benefit if the White
House wins. This is a rare pure-play generic small-cap producer, selling at a
very attractive price.
At Agora Financial, we don’t believe government has a place in negotiating lower
drug prices. And as an investor, I’d be willing to place capital on a small-cap
drug company that’s poised to grow if the government lets the free market do
what it does best.
If you think the White House will win, then this is the stock to own…
-Addison Wiggin
The Way to Profit if Medicare D is Left Intact
By Craig Walters
Since we first issued the recommendation Par Pharmaceutical Companies
Inc. (PRX: NYSE), the stock is up 22% with more room to climb.
What makes this company so attractive?
One of the producers of Lisinopril, the No. 4 most-prescribed drug in the U.S.,
is one of the largest generic companies in the world.
Par Pharmaceutical is fairly easy for investors to understand. It’s a drug
company with two primary segments: a generics business and a very small branded
drug segment. The company is the fifth largest generics company in the U.S.,
with annual sales of around $500 million.
Par’s brand segment is continuing to make investments in new candidates. And
ultimately, this is where margin improvements will spring.
If Democratic lawmakers do not get drug price negotiating powers for Medicare,
look for a black cloud-lifting effect across this sector, possibly moving it out
of the sideways trading range we’ve witnessed over the last couple of years.
The fact of the matter is that PRX is beaten down, and investors are scared to
buy, because of Congress.
PRX’s sales growth and profitability are still strong and will likely improve
when brand products, with their higher margins, contribute more to the overall
revenue mix.
Par’s capital structure is stout, with $148 million in cash, or $4.35 per share.
Long-term debt to total capital is 23%, and the company can easily service it.
The market is clearly scared of this generics stock and does not yet want to
place much value on its burgeoning brand business, as evidenced by its low
trading multiples.
This is your opportunity to buy low!
Action to take: Buy Par Pharmaceutical Companies Inc.(PRX:NYSE) up to $36 per share. Since there is
some political risk involved here, let’s use a 25% trailing
stop to protect us.
***********
Addison Wiggin has been a financial commentator for more than 12 years.
He regularly speaks at investment conferences around the world and appears on
CNN, CNBC, Fox News and other media outlets. He’s written or co-authored three
best-selling business titles: Financial Reckoning Day, The Demise of the Dollar
and Empire of Debt. He’s the publisher of several financial newsletters and
investment research advisories, and co-author of The Daily Reckoning.
Craig Walters spent several years as an analyst at the largest brokerage firm
headquartered in Washington DC. He’s had great exposure to many different
industries from communications technology firms, industrial laser companies,
niche automakers, and medical device companies.
He’s one of the most successful small-cap minds around, the contributing editor
to The Penny Sleuth daily e-letter and the editor of Small Cap Insider and Small
Cap Strategy Report.
