New applications and markets for methanol imply strong future growth. The demand growth of 4% should exceed supply growth of 3%. Dimethyl ether (DME) could push potential demand growth as high as 10%. Supply growth will be absorbed by demand growth in China.

Methanex controls nearly 19% of the methanol market. A $1.3M ton expansion in Egypt that will be on stream in 2010 will only enhance this position. The company has approved the purchase of up to 7.9 million common shares representing about 10% of the total public float.

The company is hard hit by the elimination of natural gas supplies from Argentina as well as an increase in export duty for gas by the country. However, it may have found a way out by seeking alternative sources of natural gas or by directly participating in exploration projects. It is now anticipating increasing quantities of Chilean gas in the next three years. Methanex is currently valued at 11.3x our 2008 earnings of $2.55, which is at a sharp discount to the industry median of 13.4x.

ATC Tech Highly Concentrated

ATC Tech. Corporation (ATAC) offers logistics support by providing warehouse and distribution services to its customers, and also remanufactures drivetrain products. The logistics and drivetrain segments of the company are well-set for future growth, which makes us optimistic.

However, pricing concessions to a few customers such as Ford (F), Chrysler, Honda (HMC) and AT&T (T) (all four comprising 81% of sales) exist. Hence, we recommend a Hold on the shares.

New business wins in the logistics segment, coupled with continued strength in wireless and mobile devices distribution, are driving revenue growth. AT&T is a major customer in this business. Currently, ATC is the largest remanufacturer of transmissions worldwide, with an 8% market share. The drivetrain segment is also positioned to do well in the long term, primarily driven by strength in its business with Honda.

Currently, shares of ATC are trading at 10.9x our 2008 EPS estimate of $2.04. We set a six-month target price of $23.50 which is 11.5x our 2008 EPS estimate.

Generics Embarking on Forest

Forest Laboratories, Inc. (FRX) turned in a very strong 2008, but we are concerned over the potential shortfall in revenue contribution of the company's late-stage pipeline relative to the exposure of antidepressant Lexapro and Namenda, for Alzheimer's disease, to generic competition beginning in 2012. We rate the shares a Hold.

The company's 2009 earnings will be negatively impacted by higher selling, general and administrative expense to support the launch of hypertension drug Bystolic as well as the expected launch of milnacipran, for the treatment of fibromyalgia, in late fiscal 2009. Research and development expense is also expected to dramatically increase to support the pipeline, and as a result higher milestone payments to development partners.

We model Lexapro to account for about 50 percent of total revenue in 2011. With the drug losing patent protection in March 2012, that means roughly half the company's top-line will be at risk to generic competition. While Bystolic and milnacipran should be very meaningful contributors by that time, we expect their combined sales in 2012 to be only a little over one-third that of Lexapro at that time. Namenda will face generic competition by 2013, at the latest this puts another $1+ billion at risk.

However, given the relatively cheap valuation (10.6x 2009 EPS versus peer group of 13.6x) and the potential for Forest to beef up its pipeline with additional licensing deals, we think the shares remain attractive as a core-holding.