CHICAGO, Sept. 28, 2011 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Watson Pharmaceuticals, Inc. (NYSE: WPI), Teva Pharmaceutical Industries (Nasdaq: TEVA) and Perrigo Company (Nasdaq: PRGO).
3 Stocks to Weather the Storm
Looking for some stability amid the recent market turbulence? Consider generic pharmaceuticals.
While most industries are classified as either growth or defense, generic drugs offer the unique combination of growth and defense.
Favorable Industry Trends
It's no secret that the developing world is rapidly aging. In the U.S., close to 10,000 Baby Boomers turn 65 every day. With this demographic shift comes an increased demand for healthcare.
And medications tend to be high up on peoples' lists of needs, so sales and profits usually don't fluctuate with the overall economy.
Less Hoops to Jump Through
Brand name drug makers rely on continuously discovering innovative drugs to bring to market in order to grow. These drugs are very difficult and costly to develop, very difficult and costly to gain regulatory approval, and very difficult and costly to market and win favor among doctors and the public. The reward, of course, is patent protection and a virtual monopoly on a drug for several years.
For generic pharmaceuticals, however, much of this leg work has been done for them. Many drugs are reverse engineered, so development costs are relatively low. The FDA approval process for generics is typically much less arduous than for innovative drugs, so those costs are lower too. And there's little need to market the drug, since that's pretty much already been done for them.
Once the branded drug comes off patent protection, generic alternatives are allowed to compete, and they are able to offer significantly lower prices.
Strong Zacks Industry Rank
The generic drug industry is one of the highest rated industries within the Zacks Industry Rank, ranking 4th out of 265. This indicates strong positive earnings momentum. And no matter whether we're headed for a recession or not, expect their earnings estimates to remain strong.
Below are 3 generic drug makers that should deliver steady and consistent financial results no matter what the economic climate is:
Watson Pharmaceuticals, Inc. (NYSE: WPI)
Watson is the fourth largest generical pharmaceutical manufacturer in the world. While the overall stock market was crashing in 2008, shares of WPI declined just 2% that year.
Consensus earnings estimates were remarkably stable throughout the financial crisis and Great Recession.
Teva Pharmaceutical Industries (Nasdaq: TEVA)
This Israeli-based company is the world's largest generic pharmaceutical manufacturer with operations in 60 countries. Teva held up extremely well against the market turbulence in 2008, sliding just 7% for the year.
Perrigo Company (Nasdaq: PRGO)
Perrigo is the largest store-brand over-the-counter drug maker. The company's growth has been remarkably consistent, having averaged double-digit revenue and earnings growth over the last 1, 3, 5 and 10 years.
Perrigo's consensus estimates held up very well during the last recession and have been steadily rising over the last several months. Shares of Perrigo were down just 7% in 2008.
The Bottom Line
With fear gripping the markets, one safe haven remains the generic pharmaceutical industry. Generic drugs offer the unique combination of growth and defensive, and that's not a bad strategy in this environment.
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