Seek strength amid weakness

12/29/2008


The market has bounced, with the S&P 1500 Index up 17% from Nov. 20 lows. During that period, more than 91% of the stocks in the S&P 1500 Index advanced. But while the rally is welcome, it isn’t nearly enough to make us forget the bloodbath earlier this year.

As of Dec. 22, the average S&P 1500 stock was down 38% for the year, and only 9% of the stocks in the index had managed a positive return. Against such a backdrop, it is no surprise that equity portfolios are performing poorly.

Many stocks down sharply this year have become attractive values, though it can take fortitude to buy — or hold — such stocks. However, a few companies have outperformed the market by a large margin. The table below lists nine stocks that have outperformed the S&P 1500 Index by at least 20 percentage points this year. Realize that outperformance in today’s market doesn’t necessarily mean a stock is up.

DOWN BUT NOT OUT
All of the nine stocks below have outperformed the S&P 1500 Index by at least 20 percentage points so far this year. All seem capable of continued relative strength.
Price
Company (Price; Ticker)
Since
Nov. 20
(%)
YTD
(%0

P/E on
Next-
Year
Est.

Quadrix
Overall
Score *
Industry
Advice
Accenture
($32; ACN)
20
(11)
11
90
IT Consulting 
Focus Buy †
AstraZeneca
($40; AZN)
16
(6)
8
91
Pharmaceuticals
Buy †
Biogen Idec
($47; BIIB)
19
(17)
12
94
Biotechnology
Focus Buy †
DirecTV ($21; DTV)
16
(9)
12
87
Cable & Satellite
Focus Buy †
Johnson & Johnson
($59; JNJ)
6
(12)
13
77
Pharmaceuticals
Focus Buy †
Laboratory Corp.
($64; LH)
8
(16)
12
77
Health Care Svcs.
Focus Buy †
Qualcomm
($35; QCOM)
19
(12)
14
75
Commun. Equip.
Focus Buy †
St. Jude Medical
($32; STJ)
26
(21)
13
80
Health Care Equip.
Focus Buy †
Wal-Mart Stores
($56; WMT)
11
18
15
67
Super Centers
LT Buy
† Also qualifies as a Long-Term Buy.       * Percentile ranks, with 100 the best.

While most of the best names have declined, you can take comfort in the fact that several of our selections have held up well against the storm and still seem capable of outperforming when the market recovers. Two are reviewed in the following paragraphs:

Recent results at AstraZeneca ($40; NYSE: AZN) have been strong, helped by improving profit margins and lower spending on research and development. The company has a diverse drug portfolio and a strong product pipeline with more than 10 drugs in late-stage development, some of which have blockbuster potential.

Strong sales in emerging markets are offsetting weaker sales in developed countries. In the September quarter, sales in emerging markets increased 18%, with China sales up 35%. In November, the company announced plans to close three plants and cut 1,400 jobs by 2013, streamlining European operations and focusing more tightly on faster-growing Asian markets.

Management believes the pharmaceutical industry will hold up better than most others in the global economic downturn. The company hopes to invest its healthy cash flow within the industry, with plans to purchase companies or new compounds. AstraZeneca is a Buy and a Long-Term Buy.


Laboratory Corp. of America ($64; NYSE: LH) is delivering solid results, despite the difficult economy. In the nine months ending September, revenue increased nearly 11% and operating cash flow jumped 21%. Driving revenue growth was a 9.4% increase in testing volume and price increases of more than 1%. Consensus estimates project per-share-profit growth of 12% in 2009.

As the nation’s second-largest independent clinical laboratory, LabCorp controls about 20% of the market. The acquisition of smaller regional labs has boosted growth. However, organic growth has also been solid — 4.5% in the September quarter.

The company has been focusing on fast-growing specialty services, such as genetic and cancer testing, and is working to broaden its offerings in this area. Specialty tests are more frequently outsourced than routine tests and are reimbursed at higher rates. LabCorp also stands to benefit as managed-care providers increasingly use larger, more efficient labs for routine tests to cut costs. LabCorp is a Buy and a Long-Term Buy.



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