Inside Wall Street: Two Winners from the Health Care and Tech Pack
%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%According to these investment pros, health care and tech stand to gain from the potential for robust economic growth worldwide. In tech, investors can find many investment areas to zero in on, such as makers of netbook computers, smartphones, e-readers, memory devices, server computers, optical components, search and voice recognition.
Uncorking "Bottled-Up Spending"
In health care, companies benefit from increasing demand for medical care not only in developed countries but more particularly in emerging countries. Companies in this sector also are helped greatly by cost-containment efforts by pharmaceutical companies and expanding access to health care services in the U.S.
"The tech group is benefiting from the strength of the corporate sector, as well as the postponed or bottled-up spending during the downturn," says William Harnisch, president of investment firm Peconic Partners, which has $800 million of assets under management. Harnisch's stock-picking strategy deserves some attention: In the past three years, Peconic's Triumph Fund has outscored the market, posting a gross gain of 79%, versus a decline of 16% by the Standard & Poor's 500 stock index.
"We are bullish on the economic outlook and the stock market's direction, despite a surprising amount of skepticism about the sustainability of the recovery," says Harnisch. "What seems to get missed in the discussion of jobs and production is that corporate profit margins have expanded dramatically in 2009," he says. "We expect to see dramatic revenue and earnings growth this year," he adds.
Some Big Names May Have Peaked
Nevertheless, not a few people see a market downturn ahead. "With the Dow having risen rapidly to the 10,500 level, investors should be cautious because the Dow could retrench and fall back to the 9,500 level," warns Gregory MacArthur, president of consulting firm Viewpoint 2000. He thinks such high-fliers as Apple (AAPL), Microsoft (MSFT) and Caterpillar (CAT) have already peaked.
However, Harnisch says in health care, "the emerging markets represent one huge growth opportunity" and that Israel-based Teva will dominate in those countries. Demand for generics will continue to rise in developing countries as they try to reduce spending on expensive drugs and health services because of the economic downturn.
"Teva will continue to gain market share by offering one-stop shopping," says Herman B. Saftlas, analyst at Standard & Poor's, who rates the stock a strong buy. In addition to its broad line of generic drugs, Teva also offers branded pharmaceutical products, including Copaxone for multiple sclerosis and Agilec for Parkinson's disease. In generics, Teva's products include antibiotics, anti-cancer, anti-inflammatory and respiratory agents.
Shares of Teva have been on a tear, climbing to $59.34 a share on Jan. 8, 2010, from a 52-week low of $41.05 on Feb. 2, 2009. Saftlas estimates Teva earned $3.35 a share in 2009 on revenues of $14 billion, vs. 78 cents in 2008 on sales of $11 billion.
Wall Street analysts are bullish on Teva, with 25 of 28 analysts who follow the stock rating it a buy. Three rate Teva a hold, and none recommends selling it. John Boris, analyst at Citigroup Global Markets, who rates it a buy, has a 12-month price target of $67 a share.
Taking Messages From Voice to Text
In tech stocks, Harnisch's top choice is Nuance, whose shares have rocketed to $16.71 a share on Jan. 8, 2010, from a 52-week low of $7.58 on Mar. 9, 2009. The company is a leading provider of speech-recognition products, including "call steering" technology for use in automating call centers, and voice control for wireless handsets.
In December, Nuance moved to broaden its product line by acquiring U.K.-based SpinVox, whose technology converts spoken messages into emails or text messages.
"Voicemail-to-text is a useful, emerging productivity-enhancing service," says John F. Bright, director of research at investment firm Avondale Partners, who rates Nuance outperform. The most attractive opportunity for Nuance, he says, is to use SpinVox's technology to mass-deploy voicemail-to-text services at corporations as a productivity-boosting tool.
He expects SpinVox to contribute about $35 million to $40 million to Nuance's 2010 revenues. Bright figures Nuance will earn $1.17 a share in calendar year 2010 on revenues of $1.2 billion, and $1.28 in calendar 2011 on sales of $1.3 billion, up from $1.08 in calendar 2009 on $1 billion.
Indeed, Teva and Nuance typify the potentially robust worldwide growth embedded in the technology and health care industries, says Peconic's Harnisch. These sectors, of course, have many other stocks that investors could cherry-pick from. But the compelling need, Harnisch says, is to focus on companies with proven success records and a potential to grow rapidly. Teva and Nuance sure seem to fit the bill.