Cache Share Price Reflects Ups

Cache, Inc. (CACH) continues to perform well in the difficult macro environment that has created headwinds that are negatively affecting the consumer. These headwinds include falling house prices, record levels of debt, and rising food and energy prices, which will continue to offset the strength in the company's core Cache store concept, its direct sourcing efforts, and its solid balance sheet. We reiterate our Hold rating.

The company's choice to close its poorly performing Lillie Rubin stores was a smart strategic decision that should lead to better results in future quarters. The acquisition of its largest supplier Adrienne Victoria Designs will help the company improve its direct sourcing efforts and expand its merchandising efforts.

CACH shares are up about 55% year-to-date, and that reflects much of the positives associated with its business. CACH shares are trading at 26.8x our 2008 EPS estimate and 21.3x our 2009 EPS estimate.

If we ex-out the company's $1.70/share in net cash, CACH shares are trading around 18x to 19x our 2009 EPS estimate, which is a slight premium to our estimate of Cache's long-term earnings growth rate. This will limit the stock's upside even if it the company beats estimate, as it did in the second quarter. We think the stock is fairly valued at these levels. Our target price is $15, which is 22x our 2009 EPS estimate.

Amgen Remains a Core Holding

Amgen Inc.'s (AMGN) results over the past few quarters demonstrate the challenging, but stabilizing erythropoiesis-stimulating agent (ESA) market. Nevertheless, we still feel the pipeline is significantly undervalued and continue to recommend the name as a long-term hold within the biotechnology sector. Recent positive news on phase III osteoporosis drug denosumab is a big reason we continue to be positive on Amgen.

Though ESA trends are stabilizing, it will still take a few more quarters to see exactly how the recent Oncologic Drugs Advisory Committee meeting affects sales. In the meantime, investors should focus their time on just how big denosumab and cancer drug motesanib can be, because they are the next wave of potential growth.

Amgen is still an enormously profitable company generating significant cash flow over $1.5 billion in the second quarter alone. However, the company's earnings have a tendency to bounce significantly between quarters, significantly beating one quarter and then disappointing the next. The stock had a huge run-up after the pivotal phase III denosumab data and the solid second quarter earnings. We do not believe the big run will continue, and thus are not yet ready to upgrade the shares.

Based on our 2008 through 2012 model, the 5-year earnings compound annual growth rate (CAGR) of 7% is generally in-line with that of most large-cap pharmaceutical companies.