Teva has all the symptoms of a good investment
Published: November 30, 2010
Time posted: 9:19 am
Dear Mr. Berko: I know health care costs grew a lot in the last 10 years. But a lot of that increase was due to greedy, slick lawyers who corrupted the system.
Do you think that health care costs/spending under Obamacare will continue to grow — especially drugs — in the coming decade?
My broker wants me to buy 200 shares of Teva. Please tell me what you think of Teva for a long-term investment. A friend who works for Pfizer tells me that Teva’s biggest drug, Capaxone, will loose its patent in two years, and this will hurt the company’s revenues. – J.L., Wilmington, Del.
Dear J.L.: The U.S. population in 2000 was 291 million, give or take a few million. The U.S. population in 2009 is guestimated to be about 310 million, also give or take a few million. That’s a growth of about 7 percent.
In that same time frame, revenues of the large hospital chains grew fourfold while revenues of the large health insurance companies increased a minimum of fivefold.
Last year, Americans spent more than $241 billion on prescription drugs, up 104 percent from $118 billion spent in 2000. About 55 percent of Americans over 60, according to the National Center for Health Statistics, use five or more drugs each day, and 31 percent of teenagers are taking drugs for attention deficit disorders, hyperactivity and other related conditions.
We spend enormously more money on health care than any other nation in the world, and the effectiveness of our system ranks 37th between Cuba and Costa Rica.
So, to paraphrase ex-Sen. Daniel Patrick Moynihan, our health care costs could be reduced by 40 percent if we keep the lawyers from sucking it dry. It’s interesting to note that 6 percent of the 124 million in the U.S. work force are lawyers. That’s about one out of every l7 workers. However, 47 percent of the 535 members of Congress are lawyers, and that’s about one out of every two members. Need I say more?
The advent of Obamacare could cause those numbers to triple in the next 10 years, and truckloads of money will be made by hospitals, health insurers and drug companies.
So, two analysts at the National Psychic Family Network are recommending Teva Pharmaceutical (TEVA, 52-week high of $64.95 as of March 23). Teva, a $16 billion global drug company and one of the largest generic pharmaceuticals in the world, could triple its current price in the coming six to eight years, according to the PFN. Since 2000, Teva’s revenues have tripled to $16 billion, income went nuclear from $148 million in 2000 to $4.2 billion this year and net profit margins tripled to 27 percent.
Teva’s Copaxone dominates the MS market and comes off patent in three years, but most docs will be reluctant to switch to a new drug. Copaxone has a superb profile, top-notch safety/efficacy versus the other drugs that have adverse side effects. Still, a slowdown in Copaxone will easily be offset by Teva’s 211 generic applications waiting for FDA approval.
Teva also has a few late-stage drugs in development addressing women’s health and respiratory conditions, which will certainly boost its branded portfolio.
While Teva’s revenues, net profit margins and earnings have astounded analysts, future revenues and earnings are on track to do the same. Earnings — 2009′s were $3.37 — should come in at $4.58 in this year, and low estimates for 2011 are $5.31 on revenues of $l8.6 billion.
This is a brilliantly managed Israeli company trading at 11 times forward earnings. Since 2000, Teva split (two for one) twice and zoomed from $15 to more than $60 this year. The balance sheet is sterling, debt is 21 percent of equity and more than 900 institutions own 55 percent of the 980 million shares. There are 26 analysts who follow Teva, and 23 of them rate it a “buy.”
Buy 200 shares, reinvest the dividends and it should do as well in the coming 10 years as it did in the last.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at firstname.lastname@example.org.