Hot sectors lead to hot stocks. We screened the best performing sectors and those with technical analysis buy signals. We came away with a stock we like for the long-term, AmerisourceBergen Corporation (NYSE:ABC).
AmerisourceBergen is one of the nation’s largest pharmaceutical services providers. ABC works with manufacturers of branded pharmaceuticals, generic pharmaceuticals, biotech and specialty drugs, over-the-counter remedies, and health and beauty aids. They service independent retail pharmacies, national and regional chains, hospitals, clinics, pharmacy benefit managers, prescription mail order facilities, physician offices, and long-term care facilities.
ABC recently reported earnings and management increased its full year 2009 earnings guidance to $3.18 to $3.30 per share from $3.08 to $3.25 a share. As a result of ABC “putting strong earnings performance on top of strong earnings performance,” all 14 analysts covering the wholesale drug company lifted their expectations for 2009 and 2010. Even Standard & Poor’s recognized ABC strong performance and rewarded the company with a ratings upgrade. In light of the subprime mortgage black-eye ratings agencies have worn of late, an upgrade is hard-earned.
AmerisourceBergen says boldly that they anticipate doing well “even if the current economic environment continues in the near term.” The company also believes they will benefit greatly with ObamaCare. Executives say…
“We are not seeing anything in the healthcare reform debate currently that we think will be a big negative for ABC and could in fact be a strong positive. We think the $46 million or so uninsured will be addressed, which will increase pharmaceutical utilization, a strong positive for ABC and our industry.”
Our fundamental analysis puts a check mark in all the boxes we deem important. ABC trades with a forward P/E of 9.75, a little less than their projected growth rate of 10%. CHECK.
The stock trades at only 8 cents for every dollar ABC does in sales. Eight cents? That’s ridiculous! The industry trades at 50 cents on the dollar. CHECK.
We are happy with a PEG ratio under one; ABC’s 0.92. CHECK.
With a Return on Equity of 16.9%, ABC has the ability to print cash faster than the US Government and add to the nearly $900 million already in the bank account. CHECK.
Our technical analysis of ABC’s stock chart leads us to believe ABC will make a shot-term run at $39. If the stock price can break $39, it’s a clean shot straight to the 52 week high of $44.45.
Long-term we believe AmerisourceBergen could be a core holding as demographics favor companies like ABC. The company’s CEO and President, David Yost, put it best in this fabulous quote:
“The fundamentals of the industry continue to be strong as far out as any of us can see. The ABC circle of life continues to hold. The older people get, the more drugs they take, the more drugs they take, they older they get.”
Our subscribers will find a trading earnings pick for Thursday in today’s Correct Call Calendar. The trading earnings pick has beat earnings 14 times in a row. Ten of those surprises have seen the stock rise by an average of 15%.
