• Nobel Prize-winning economist Paul Krugman said the United States needs to take aggressive economy-stimulating action or risk facing a lost decade of growth a la Japan in the 1990s. “We’re doing half-measures that help the economy limp along without fully recovering, and we’re having measures that help the banks survive without really thriving,” Krugman told reporters in Beijing, Reuters reported. “We’re doing what the Japanese did in the 90s.”

• European Central Bank President Jean-Claude Trichet said he and fellow policy makers are seeing the first signs of economy recovery. Recent reports are “encouraging, but it’s no time for complacency,” Trichet said at a meeting of global banks, Bloomberg reported.

• AstraZeneca plc’s (NYSE ADR: AZN) heart drug Brilinta beat blockbuster drug Plavix – of Sanofi-Aventis SA (NYSE ADR: SNY) and Bristol-Myers Squibb Co’s (NYSE: BMY) – in one of the largest comparative head-to-head drug studies, Reuters reported. Plavix alone nets about $8 billion and if approved, Brilinta would take a large portion of that.

• Intel Corp. (NASDAQ: INTC) may have to pay an antitrust fine of more than 1 billion euros ($1.36 billion) and stop giving discounts to computer sellers. The company faces awaits the decision of the European Commission on charges that it has been muscling competitors out of the European market, Bloomberg reported.

• General Motors Corp (GM) is open to moving its headquarters from Detroit. The company also may sell some of its U.S. plants and renegotiate its restructuring plan with unions as it heads toward probable bankruptcy, GM Chief Executive Officer Fritz Henderson said yesterday (Monday), according to Reuters. Henderson it was more likely that GM was headed for bankruptcy by June 1 – the U.S. government-imposed deadline for the automaker to restructure.

• Microsoft Corp. (NASDAQ: MSFT) plans to sell $3.75 billion of debt in its first bond offering, taking advantage of its top credit ratings to help fund a share buyback and technology investments.  The world’s largest software maker, whose shares have declined 34% in the past year, is seizing on a credit-market rally to help fund a $40 billion stock repurchase program. The company is also investing in data centers to compete against Google Inc. (NASDAQ: GOOG) in Internet search, Bloomberg reported.

• Dish Network Corp (NASDAQ: DISH) posted better-than-expected profits on Monday and lost fewer subscribers than most Wall Street analysts had forecast, sending its shares soaring, Reuters reported. U.S. satellite TV provider Shares rose as much as 21.5 percent in afternoon trading on the Nasdaq on the lower customer losses and indications that the company had started to get control over a long-standing problem with piracy with its set-top box software.

• Nortel Networks Corp (OTC: NRTLQ), North America’s biggest maker of telephone equipment, said yesterday (Monday) its quarterly loss widened as the global recession contributed to a 37% drop in revenue, Reuters reported.  Nortel, which filed for bankruptcy protection earlier this year, also said it is completing plans to decentralize some functions at each of its four main businesses to give it more flexibility as it decides which divisions to sell.

Source: Investment News Briefs Tuesday, May 12, 2009

Identifying The Market’s Next Takeover Targets

The task of identifying the market’s next takeover targets can be daunting. Literally thousands of potential targets exist, which is probably why most investors liken it to a crapshoot and in turn, shun such a strategy altogether.

But that’s a monumental mistake!

They’re passing up easy double-digit profits. Historical takeover premiums (the amount paid over the current share price for a target company) average 22%, according to a study in The Journal of Finance.

And that’s just the averages.

It’s common for many deal premiums to reach into the high double digits and even triple digits.

Investing in Takeover Targets – 3 Steps to Improving Your Odds

By following three simple steps when investing in takeover targets, we can dramatically improve our odds of success…

• Go where there is consolidation. Consolidation trends are a powerful predictive tool because they tend to persist. Think about it. When your biggest competitor goes out and doubles in size overnight, there’s only one way to respond – find a suitable acquisition of your own to remain competitive. Thus, by focusing on those industries and sectors undergoing the most rapid consolidation, we can isolate high probability targets.
• Focus on companies with valuable (and undervalued) assets. Whether it’s a new drug, a mammoth oil discovery, key market share, distribution channels, or a few promising patents, the real reason a company is acquired is because it owns a particular asset of value to the acquirer. Only invest in companies with such “must have” assets. And to reduce risk even further, I suggest buying clearly undervalued companies – ones trading at or near cash levels on the balance sheet. (Yes, they do exist.)
• Insist on improving fundamentals. Understand that takeovers take time. In fact, acquiring companies might spend as much as nine months conducting due diligence. Yet, even then, there’s nothing stopping them from walking away from a deal (Microsoft -NASDAQ:MSFT- and Yahoo! -NASDAQ:YHOO- ring a bell?). I recommend buying an “insurance policy” to protect against such unprofitable break-ups. By that I mean, only buy companies with improving fundamentals – whether it’s strong earnings growth, new product launches, increasing market share, etc. That way, you stand to profit even if a takeover never materializes.

You’ll recall in my previous article about the imminent takeover boom, I singled out three sectors that fit the first criteria above – health care (specifically drug makers), energy and technology.

3 Takeover Targets to Add to Your Portfolio Today

For those unwilling to expend the effort to carry out the next two steps… or just eager to get going immediately, here are three takeover targets to consider adding to your portfolio today:

• Crucell NV (Nasdaq: CRXL): Merck (NYSE:MRK) and Schering Plough (NYSE:SGP). Pfizer (NYSE:PFE) and Wyeth( NYSE:WYE). Roche and Genentech (NYSE:DNA). Now Gilead Sciences (NASDAQ:GILD) and CV Therapeutics. Crucell is likely next. It’s the largest independent vaccine maker, with products for treating influenza, childhood diseases and hepatitis B. Crucell’s PER.C6 cell line is its most valuable asset. The company already licenses out the technology to over 60 companies. And there’s no doubt management is accepting offers. In January, it was in friendly talks with Wyeth, before Pfizer swooped in and bought Wyeth and ended the discussions. Best of all, multiple suitors exist (Novartis -NYSE:NVS-, Sanofi-Aventis (NYSE:SNY), Merck and eventually Pfizer) so a bidding war could unfold, which translates into greater profit potential for us.

• Anadarko Petroleum, Corp. (NYSE: APC): As oil tycoon T. Boone Pickens famously observed, it’s often cheaper to drill for oil on the floor of the New York Stock Exchange than in the ground. Andarko proves it, as its reserves currently trade for less than $10 per barrel. Throw in a recent deep-sea discovery off Brazil, minimal political risk (80% of assets are located in North America) and high-quality, relatively untapped and undervalued natural gas assets and the takeover case here is an cinch. A multi-billion dollar stock repurchase program provides downside protection, too.

• Lawson Software (Nasdaq: LWSN): The company is a quickly growing niche vendor of enterprise resource planning (ERP) software for medium-sized businesses. Tech heavyweights like Oracle (NASDAQ:ORCL), Cisco (NASDAQ:CSCO)and Microsoft are in desperate need of new growth initiatives. They have little exposure to the middle-market. And they have the cash to afford to buy it. The $308 million in cash sitting on Lawson’s balance sheet reduces our risk and also represents a 32% instant rebate to any potential suitors.

Full disclosure: I have recommended all three of these companies to subscribers in recent months. And we’re sitting on gains of 8%, 25% and 59%, respectively, proving it pays to follow step 3 above.

So to echo Alex’s sentiments from Monday, if you haven’t added a handful of potential corporate takeover targets to your portfolio, what are you waiting for? The opportunities and potential profits will be historic.

Good investing,

Lou Basenese

Source:  Takeover Targets: 3 Steps to Finding Them & 3 Stocks for Any Portfolio

European stocks ended higher on Friday, as buoyant pharmaceutical shares eclipsed a drop in cyclical mining and industrial sectors hit by renewed economic fears, while energy shares tumbled along with oil.

The FTSEurofirst 300 index of top European shares closed 1.1 percent higher at 862.07 points.

Although it gained 13 percent during the week, the index dropped 7 percent in November, recording a ninth month of losses in what has been a torrid 2008 for equities worldwide.

Pharma stocks made strong gains on Friday, with GlaxoSmithKline up 5.1 percent and Sanofi-Aventis up 4.5 percent. Novartis , whose CEO said the company could increase its dividend and also resume share buybacks once it has reduced its debt, gained 4.4 percent.

The sector rallied after the publication of a long-anticipated EU report on generic competition. Although Competition Commissioner Neelie Kroes said preliminary results showed competition in the pharmaceuticals industry “does not work as well as it should”, traders said the absence of specific penalties in the report brought some relief to pharma stocks.

Energy firms such as Total and BP dropped 0.7-2.6 percent as oil prices sank below $52 a barrel on signs OPEC would defer cutting production when it meets this weekend in Cairo.

Industrials were also among the biggest losers, with Siemens down 3.8 percent and Alstom down 6 percent.

Despite the market’s recovery during the week, analysts remain wary about a potential “Christmas rally” this year.

“The volatility is not about to come down immediately. The economic newsflow is just too horrible. It’s too early to call for a straight market rally at this point,” said Arthur van Slooten, strategist at Societe Generale, in Paris.

“With deflation fears, risky assets have been pricing in the worst. But it doesn’t mean that all of a sudden, from now on you have a straight way up. We know that the newsflow will be terrible, but we need at least some sort of indication that the bottom is maybe in sight,” he said.

“Next year’s first quarter will really look awful in terms of macro data and with analyst further downgrading their estimates and companies finally becoming realistic in their own guidance. That in itself could provide us with a sound basis to build from there.”

Miners took a beating on Friday, adding to recent sharp losses. Anglo American shed 2.4 percent and Xstrata dropped 3 percent.

Prices for copper, a key industrial metal, slipped as tumbling industrial production data from Japan highlighted bleak prospects for demand in an oversupplied market, while prices for aluminium also fell, hit by the rising fears about the health of the embattled auto sector.

“There is little doubt that the outlook for metals demand is grim for at least the next few quarters and prices have fallen to levels that reflect market expectations for further stock increases,” Barclays Capital said in a note.

Automakers lost ground, with Volkswagen down 5 percent, BMW off 3.4 percent and Renault down 4.8 percent.

“Going into the weekend, one can’t help but worry that we are only a heartbeat away from the next scare story,” said Chris Hossain, senior sales manager at ODL Securities.

“The markets appear to have been buoyed by the feeling that the U.S. will be bailing out the auto industry, but one has to wonder how much more the global governments can continue to support troubled industries,” he added.

Around Europe, Germany’s DAX index eked out a gain of 0.1 percent, UK’s FTSE 100 index rose 1.5 percent and France’s CAC 40 added 0.4 percent.

By Blaise Robinson
PARIS, Nov 28 (Reuters)

And the “Oracle of Omaha” isn’t done, yet.

Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) agreed to buy $5 billion in perpetual preferred Goldman shares that pay 10% interest. In addition, Berkshire receives warrants giving it the right to buy $5 billion worth of Goldman’s common shares at any time over the next five years at a price of $115 per share. The shares closed Tuesday at $125.05 and yesterday (Wednesday) at $133, up $7.95, or 6.36%, each.

“Goldman Sachs is an exceptional institution,” Buffett said in a statement. “It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

Based on Tuesday’s closing price of $125.05, Buffett made an almost instantaneous paper profit of about $437 million on the warrants. With yesterday’s advance, that paper profit rose to $783 million.

Scott Roth, management partner at Severn River Capital Management, told Bloomberg News that by his calculations Buffett is buying the preferred stock for about $3.2 billion, after accounting for the warrants. Roth worked at Goldman more than a decade ago and is betting the stock won’t drop.

“As usual Mr. Buffett has struck an extremely attractive deal,” Guy Moszkowski, an analyst at Merrill Lynch & Co. Inc. (MER), wrote in a note to clients. “He is, we believe, getting a better deal than he did in 1987 when he bought a Salomon Bros. convertible with a 9% yield, for a company that is considerably more attractive than the ‘87 Salomon.”

Goldman Sachs, which has booked roughly $5 billion in losses and write-downs, and which has lost about 40% of its market value this year, is benefiting, too. In addition to Berkshire’s cash infusion, the firm gets a vote of confidence from Wall Street’s greatest legend at a time of extreme uncertainty.

The collapse of The Bear Stearns Cos. Inc. and Lehman Bros. Holdings Inc. (OTC: LEHMQ), and the hurried sale of Merrill Lynch to Bank of America Corp. (BAC), sent shockwaves through the industry. And many investors, up until this point, were unsure of just how successful Goldman’s transition to a holding company would be.

Buffett is “getting very attractive terms, but Goldman is getting very attractive affirmation of their value from an investor with Warren’s stature,” Tom Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, which manages more than $3 billion, including Berkshire shares, told Bloomberg.

Goldman got an immediate lift in its share price, which rose 4% over the past two days, as investors and mutual funds mimicked Buffett’s strategy.

Buffet also gave a boost to the overall market, as he braved the treacherous terrain of financials.

The purchase “is a significant sign, as Mr. Buffett is of course known for making prudent, long-term investments in companies with good fundamentals and solid growth potential,” Sacha Tihanyi, a currency strategist at Scotia Capital told The Wall Street Journal. “The ‘Oracle of Omaha’ believes not only in Goldman, but also the industry’s prospects over the medium term.”

Jim Cramer Backs Buffett

In an article that appeared on the TheStreet.com, site director and co-founder Jim Cramer broke down both Buffett’s Goldman stake, as well as his recent bid for Constellation Energy Group Inc. (CEG).

“These investments are the first sign that someone, some grown-up, is coming in from the sidelines, not because he has been talked into something that he doesn’t want to do or understand – which has been the case in all of the other bank financings – but because he sees a delicious rate of return that will be hard to take away now that he has put his balance sheet to work, one of the last with any firepower to make a difference,” said Cramer.

Earlier this month Buffett’s MidAmerican Energy Holding Co. offered $4.7 billion, or $26.50 a share for Constellation. MidAmerican displaced Electricite de France SA (PINK: ECIFF), Europe’s biggest power producer as Constellation’s top shareholder Monday, after paying $1 billion in cash for a 19.9% stake.

Both Goldman and Constellation fit into the typical Buffett model of having strong management and well-established business models. But they’re facing problems that have transformed them into bargain-basement profit plays.

“It is more than ironic that [Buffett] came in after a multitude of articles that talked about how Goldman is worth far less than it was before it became a commercial bank, because the truth is that it is worth far more as a commercial bank because it can do more and have access to more capital and is safer,” Cramer said. “The press didn’t believe it because the press gets its information from the [short-sellers]. But Buffett did. Perhaps we should be thinking more like Buffett and less like the press.”

What Buffett’s Been Buying

According to a recent study, buying what Buffett has bought – even a month after his purchases – is a pathway to superior returns. In fact, over the past three years, this strategy has delivered double the return of the Standard & Poor’s 500 Index, according to research by professors at both American University and the University of Nevada at Las Vegas.

That means it’s well worth the time to revisit what Warren’s been up to.

In February, Berkshire took an 8.6% stake in Kraft Foods Inc. (KFT), becoming the foodmaker’s biggest shareholder. That was followed in March by the $4.5 billion purchase of Marmon Holdings Inc. In April, Buffett supplied Mars Inc. with $6.5 billion to help the candy company acquire Wrigley Jr. Co.

Last month, filings with the U.S. Securities Exchange Commission (SEC) shed more light on just what Berkshire was up to during the second quarter.

Prior to putting $3 Billion into Dow Chemical Co.’s (DOW) $15.4 billion takeover of Rohm & Haas Co. in July, Berkshire reduced its investments in Anheuser Busch Cos. (BUD) and Trane Inc., and added positions in NRG Energy Inc. (NRG), Ingersoll-Rand Co. Ltd (IR), and Sanofi-Aventis (ADR: SNY).

According to the SEC, Berkshire in June reduced its stake in Anheuser Busch to 13.85 million shares, less than half the 35.56 million shares it held as of March 31. Also in March, Berkshire dumped its 10.9 million shares of Trane Inc. That stake was valued at more than $500 million as of March 31.

After unloading in the spring, Buffett treated Berkshire Hathaway to a $4 billion shopping spree. By the end of the second quarter, Berkshire’s stake in French drugmaker Sanofi Aventis had shot up by 317,200 shares, to reach 3.9 million. Berkshire also added 5 million shares of Ingersoll-Rand, and announced new holdings in NRG Energy, the second-biggest power producer in Texas. Berkshire held 3.24 million NRG shares as of June 30.

Then, in a move that highlighted Buffett’s bullishness on railroad stocks, Berkshire doubled its stake in Union Pacific Corp. (UNP), taking its holdings from 4.45 million shares at the end of March to 8.91 million shares as of June 30.

But the acquisitions disclosed to the SEC were only a fraction of the $3.98 billion Berkshire spent on stocks in the April-June period.

Even if Buffett bought the shares at their highest second-quarter prices, which he almost certainly did not, the total cost would only have been about $260 million. That means more than $3.5 billion went into smaller amounts of unnamed stocks the company was not required to disclose.

At the year’s mid-point, Berkshire had $31.2 billion in cash, down from $44.3 billion at the end of 2007, Bloomberg News reported.

“It’s nice to have a lot of money, but you know, you don’t want to keep it around forever,” Buffett recently told Bloomberg. “I prefer buying things. Otherwise, it’s a little like saving sex for your old age.”

Source: Buffett’s Goldman Deal Has Big Benefits, but What Else is Berkshire Up To?

• Japan’s wholesale inflation remained near a 27-year high in August, the government said yesterday (Wednesday), as the index for domestic corporate goods prices rose 7.2% from a year ago. The index measured a revised 7.3% increase in July.

• The Defense Department has deferred its decision on a $35 billion tanker contract to the next administration, further delaying the heated competition between The Boeing Co. (BA) and Northrop Grumman Corp. (NOC). Defense Secretary Robert Gates said yesterday (Wednesday) that he decided to cancel the current round of bidding because the complexity of the project and the friction between the two companies, The Associated Press reported.

• Citigroup Inc. (C) has taken a $450 million pretax hit so far this quarter due to its exposure to the troubled mortgage finance companies Fannie Mae (FNM) and Freddie Mac (FRE), the company said in a filing with the Security Exchange Commission. Citigroup said its total exposure to preferred shares of Fannie and Freddie is now about $50 million, down from about $1 billion on June 30, 2008.

• Consumer price inflation in China fell for the fourth consecutive month in August, Beijing said yesterday (Wednesday). Consumer inflation was 4.9% last month, down from 6.3% in July, However, factory price inflation edged up to 10.1% in August.

• ImClone Systems Inc. (IMCL) received a $6.1 billion takeover offer yesterday (Wednesday), ImClone Chairman Carl Icahn announced. He refused to disclose the interested party, saying only that a “large pharmaceutical company” outbid Bristol Myers Squibb Co.’s (BMY) unsolicited offer, Bloomberg News reported.

• Bank of America Corp. (BAC) yesterday (Wednesday) announced it would buy back $4.5 billion of illiquid auction-rate securities in order to settle an investigation by Massachusetts’ state regulators. The repurchase will affect approximately 5,500 Bank of America retail customers nationwide, Reuters reported.

• France’s Sanofi-Aventis SA (ADR: SNY) announced yesterday (Wednesday) that it had appointed Chris Viehbacher, former head of GlaxoSmithKline PLC’s (ADR: GSK) North American drugs business, to replace Chief Executive Officer Gérard Le Fur as of Dec. 1. The management change at Sanofi-Aventis stems from conflicts with Chairman Jean-François Dehecq, the International Herald Tribune reported.

• Royal Dutch Shell PLC (ADR: RDS.A, RDS.B) yesterday (Wednesday) announced it was evacuating personnel from its Gulf of Mexico oil platforms as Hurricane Ike makes its way towards the Texas coast. Ike is expected to hit land early Saturday after passing through the Gulf of Mexico, home to most U.S. oil refineries, the AFP reported.

Source: Global Investing Roundups Thursday, September 11th, 2008

Not even Warren Buffett was immune to the stock market’s rampant first-half gyrations, as Berkshire Hathaway Inc. notched its worst first half in 18 years, with the shares skidding more than 16%. But only a fool would count out the great Oracle of Omaha, who has spent the past several months restructuring his company’s portfolio and is now ready to come out swinging for the year’s second half.

As Money Morning’s Horacio Marquez noted in his most recent “Buy, Sell, or Hold” feature, Berkshire Hathaway has had a tough start for the year.

The company’s net earnings for the first half were $3.8 billion – a 33% decline from the $5.7 billion reported for the same period last year. But even though the second quarter was weak – especially by Buffett’s standards – it showed marked improvement from the first three months of the year.

Berkshire reported about $1.6 billion in unrealized losses from derivatives in the first quarter. But after warning that derivatives contracts will often “swing wildly,” the company posted $689 million in derivatives gains in the second quarter.

Berkshire’s revenue actually rose 10% to $30.09 billion for the quarter.

But that’s not enough for Buffett, who has set about restructuring his company’s holdings. In the past few months, Berkshire has reduced its investments in Anheuser Busch Cos. (NYSE:BUD) and Trane Inc., and added positions in NRG Energy Inc. (NYSE:NRG), Ingersoll-Rand Co. Ltd (NYSE:IR), and Sanofi-Aventis (ADR:SNY).

According to filings with the U.S. Securities Exchange Commission (SEC), Berkshire in June reduced its stake in Anheuser Busch to 13.85 million shares, less than half the 35.56 million shares it held as of March 31. It’s likely the company received a tidy sum for its shares, as earlier that month InBev SA (PINK: INBVF) offered $65 a share for the American icon. Buffett admits to bailing on the Bud brand before InBev raised its offer to $70 a share, but AB was trading at close to $62 a share on June 30, much higher than the $47 a share the company was valued at in late March.

Also in March, Berkshire dumped its 10.9 million shares of Trane Inc. That stake was valued at more than $500 million as of March 31.

After unloading in the spring, Buffett treated Berkshire Hathaway to a $4-billion shopping spree over the next several months. By the end of the second quarter, Berkshire’s stake in French drug maker Sanofi Aventis had shot up 317,200 shares to reach 3.9 million. Berkshire also added 5 million shares of Ingersoll-Rand, and announced new holdings in NRG Energy, the second-biggest power producer in Texas. Berkshire had 3.24 million NRG shares as of June 30.

Even more interesting, in a move that highlighted Buffett’s bullishness on railroad stocks, Berkshire doubled its stake in Union Pacific Corp. (NYSE:UNP), taking its holdings from 4.45 million shares at the end of March to 8.91 million shares as of June 30.

Last year, Buffett and Berkshire road the rails hard. Buffett made his first move on Burlington Northern Santa Fe Corp. (NYSE:BNI) last April, acquiring nearly 40 million shares – or close to 11% – of the railroad. He then moved on to snap up 10.5 million shares of Union Pacific Corp., and 6.4 million shares of Norfolk Southern Corp. (NYSE:NSC).

Later in August, Berkshire went shopping again, loading on an additional 3.3 million shares of Burlington and another 6,000 in September. But Buffett didn’t stop there: He added yet another 10,300 shares of Burlington over the two-week period ending Jan. 22, bringing Berkshire’s total stake in the company to 18.2%.

Berkshire’s second-quarter acquisitions, which were disclosed in an SEC filing last week, are only a fraction of the $3.98 billion Berkshire spent on stocks in the April-June period.

Even if Buffett bought the shares at their highest second-quarter prices, which he almost certainly did not, the total cost would only have been about $260 million. That means more than $3.5 billion went into smaller amounts of unnamed stocks the company was not required to disclose.

Where that money went is anybody’s guess, but Buffett indicated in a recent interview with CNBC that a portion of it went into one of two stocks: Wells Fargo & Co. (NYSE:WFC) or American Express Co. (NYSE:AXP).

Wells Fargo stock has plummeted 22% in the past year, while American Express is down more than 37% in that time. However there may be some clues as to which stock Buffett really believes will rebound in some earlier comments he made.

“We’ll say at American Express… they are experiencing credit deterioration and they’re experiencing it sort of in all segments,” Buffett said earlier on CNBC’s Squawk Box. “So they’re seeing the rich customers slow down in payments, slow down in purchases.

“And American Express can describe that rather than I,” he added, “but I pay a lot of attention to that sort of thing. And incidentally, it will get cured at some time in the future, but right now the situation is getting worse and I would say that I don’t see any early end to that.”

That assessment doesn’t seem particularly favorable, particularly compared with comments Buffett made with regards to Wells Fargo just a few months ago.

“Wells Fargo stock was down last year,” Buffett said, “I don’t think the intrinsic business value shrunk. In fact, I said I thought it probably increased a touch.”

Berkshire already owns considerable stakes in both companies.

Source: Buffett Reignites Berkshire Hathaway with a $4 Billion Spending Spree

Sara says local drug companies with strong product brands will be among the main targets.

They say when the U.S. sneezes, the whole world catches cold…Well, it’s time for a trip to the drug store. More and more often, that means Central and Eastern Europe.

For our Taipan VIP subscribers who attended our August Global Summit conference in San Francisco earlier this month, you may remember me mentioning a couple companies. Big names… Internationally recognized companies like Teva Pharmaceuticals (NASDAQ:TEVA) and Sanofi-Aventis (NYSE:SNY). They’ve set up shop in places like Hungary and the Czech Republic.

Hungary is one of the most developed pharmaceutical and biotechnology sectors in Central and Eastern Europe. Hungary boasts the strongest biotech sector among the twelve new EU member states. That has enticed seventy core biotech companies to set up shop in Hungary up to now and 170 companies have some kinds of biotech related activities. The reason? Cost savings. Companies can save 30-50% compared to Western European enterprises.

But there’s another side to the drug industry and it’s increasingly finding a home in this very region.

I’m talking about generic drugs.

This industry has seen some remarkable growth. Between 2003 and 2006, the generic drug sector has grown at an annual rate of 19% in Central and Eastern Europe. More recently, this area has grown by about 9% a year, and rakes in about $10 billion in sales.

McKinsey Quartery estimates that international companies can bring in somewhere in the neighborhood of $1 billion in additional sales each year.

One of the ways international companies become big player in these markets is through acquisition. With the growth of Central and Eastern European economies, small local companies have sprouted up everywhere.

These smaller companies have at times made quite an impression on market share. Names like Zentiva and Egis Pharmaceuticals might ring a bell to investors. Both are traded as pink sheets here in the U.S. and on a number of German exhanges.

Sanofi-Aventis hold a large stake in Zentive (about 24.9%), and even tried to take the company over. The offer was rejected, though. Another French company, Servier, owns 50.91% of Egis.

For now, drug companies, and especially generics, are still in a major growth spurt. Look for companies who have strong product brands. That’s different from company brands, and it really opens up the playing field for those smaller regional manufacturers.

This could spur even more acquisitions, so be on the look out!

Source: Cold War Drug Store

So how can you turn a profit in this turbulent sector? By investing in contract research organisations, or CROs, says biotech expert Rob Fannon. When the big pharmaceutical companies outsource research to CROs they get paid whether or not the new drugs ever make it to market.

There’s another way to profit too – contract sales organizations, or CSOs. They’re another way for Big Pharma to outsource, but instead of doing research they sell. Investing in them is a low-risk method to turn a big profit from Big Pharma’s woes…

Today, I want to tell you about a group of stocks ready to explode as the world’s largest drugmakers slim down… As I’ve explained before in Growth Stock Wire, Big Pharma is in trouble. The industry is facing slowing sales, patent expirations, generic competition, and withering pipelines. Now drugmakers are on a massive diet. The biggest losers – Pfizer (PFE), Merck (MRK), and Sanofi-Aventis (SNY) – are dumping employees and slashing costs.

One of the winners in this situation is contract research organizations, or “CROs.” Rather than perform the work in-house, drugmakers are outsourcing research and clinical trial work. As I’ve written before, I love CROs. They get paid whether or not new drugs make it to market. So they’re a uniquely safe health care investment.

I recently told Phase 1 subscribers about another industry set to reap big rewards from drugmakers’ downsizing. Let me explain…

By far, the biggest victims of Big Pharma’s cutbacks are drug reps: attractive, well-paid twenty-somethings visit doctors bearing free samples and branded mugs. The largest drugmakers in the world are firing their rank-and-file sales force in record numbers. For the first time in more than a decade, the total number of drug reps actually fell last year.

Leading the bloodbath is Pfizer, the world’s largest drug company. Last October, it kicked off a cost-savings plan that included a 10% reduction in its global workforce: 10,000 jobs. That includes 2,200 sales positions, nearly 20% of its U.S. fleet. Shortly after, Pfizer’s peers announced similar cutbacks…

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Britain-based AstraZeneca will trim 7,600 jobs, 11% of its roster, including most of its European sales force. Johnson & Johnson will cut 5,000 folks, including 400 drug reps right away. Sanofi-Aventis is firing one-third of its domestic sales force. And 3% of Novartis’ employees, including 500 U.S. sales reps, got canned.

Of course, these companies still need to sell drugs. But at $165,000-$170,000 a year, traditional drug reps are too darn costly. The industry must sell more efficiently. That’s where contract sales organizations, or CSOs, come into play.

Today, Big Pharma players can “borrow” sales reps on a temporary basis from a few CSO players. For example, Novartis may need a short-term team to push its flu vaccine in the fall. Or Merck might want to boost a drug launch and build brand awareness quickly. Using CSOs, drugmakers can supplement their internal sales force with top reps without taking on permanent, costly employees.

Right now, CSO reps make only 5% of total drug sales. This figure is set to triple in the next three years. That would make the substitute sales-rep industry worth about $2 billion. But CSOs do much more than farm out salespeople. They also recruit, train, and place new reps at drug companies. And they do market research, brand management, and other types of consulting.

The industry’s biggest player is inVentiv Health (VTIV). The company loans out sales reps, crafts sales and marketing strategies, and provides staffing services. It brings in about $1 billion per year

Like CROs, the CSO industry is a perfect example of a low-risk, high-reward way to profit on Big Pharma’s crash diet.

Good investing,

Rob Fannon

P.S. inVentiv is trading near fair value. But I prefer clear bargains… Last month, I recommended a CSO pioneer to my Phase 1 readers. Incredibly, the company was trading just above the amount of cash it held in the bank.

We’re up about 8% on the position in a few short weeks, but this is just the beginning. I expect the stock could net readers at least 50% returns in the next year. Click here to learn about a risk-free subscription to Phase 1.

Source: Another Perfect Health Care Investment