Tuesday, May 30, 2006

The King & I: Shall We Dance?

King Pharmaceuticals (KG) – I don’t think I need to spend much time on the profile. Pretty clear where KG makes their money. The key point is that they specialize in “branded” pharmaceuticals, which I suppose is the opposite of generics. You’d have to be living under a rock to not know that the big Pharma stocks have been under-performers the past several years. OTOH (see I know some of the cool shorthand), the market seems to be entering bear mode and conventional wisdom says that Pharmaceutical and food stocks are the places to get defensive.

Here are some facts:

  • In the 1st quarter Revenues increased 31% Y o Y.
  • Excluding a special one-time fee, diluted earnings per share increased 42%.
  • Balance sheet looks strong with just 400m in debt and a 1.9 current ratio.
  • Current price is $17.80 vs. a 52-week range of $9.22 to $20.00.
  • Market Cap: $4.31b
  • Earnings Yield (MFI): 16%
  • Return on Capital: 100%

Interesting company. I’ll tell you, the 31% growth in revenues is very impressive. You always need to know more about Pharmas, such as what is in the pipeline and what blockbuster drugs may become generic. Not a small cap stock, but I think that KG will make my list of stocks to review more, especially if I want to become a bit more defensive. There is also the argument that the Pharmas will be benefiting from the new Prescription plans, which should make prescriptions more available and affordable to senior citizens. Finally, I don’t have much drug exposure in my portfolio (not that I have had a positive experience with any, particularly one stock that begins with the letters “Pf”).

So to recap, my further review list has OVTI, RAIL, KSWS and KG.


Orckit Communications (ORCT) – ok, I will admit it. As a fan of Lord of the Rings, I would have trouble buying Orckit Communications just because I would have to look at the symbol. What is an Orckit anyway? A place? A person? Let us ask Google. I don’t see anything beyond the company. Must be a made up name. I won’t hold it against them.

Checking their profile, ORCT is an Israeli company which develops and sells telecommunication equipment. Helps telecomms with HDTV, Broadband video etc.

  • Revenues up 21%
  • Delays in expansion into Japan
  • Strong Balance sheet.
  • Expect forward earnings to be between $0.68 and $1.20

They are a cheap company considering high tech and growth. The telecomms and cable companies are in an all-out war for control of television, internet, telephones, video-on-demand etc. It seems to me that companies that can offer innovative solutions will have plenty of cash flowing their way. I think ORCT is worthy of further consideration.

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