Recession-Proof Investing

Holland Capitals Monica Walker repositions her portfolio to weather economic turmoil

(SGP) several years ago when its margins and earnings were depressed. The company had just lost a patent on its blockbuster allergy drug, Claritin. Schering-Plough changed course and hired a CEO who looked to turn the company’s direction around. Management has worked to fill the company’s pipeline of medications, and it doesn’t face a major patent expiration until about 2015.

Its November acquisition of the biotech company Organon promises to lift earnings as well. Annual earnings growth should average about 20% over the next five years, and we think the stock is a compelling story since its P/E multiple is well below that.

What about outside of the traditional drug makers?
Hospira (HSP) makes generic versions of injectable medicines and medication delivery devices that are sold to hospitals, such as IV pumps and infusion systems that administer medications and fluids to patients. In 2004 Hospira was spun off from Abbott Laboratories where it wasn’t run optimally and never achieved the margins it could have made. Since then, management has been focused on getting its house in order and pushing margins higher. We like Hospira’s acquisition of the Australian injectable drug manufacturer Mayne Pharma, which closed in February 2007, and we see the company growing earnings at a 15% annual clip.

Walker’s Picks

   

52-week Price Range

     
Company (Ticker) Price Low High 2008Est. EPS 2008P/E Ratio Comment
AFLAC (AFL) $60.70 $45 $67 $3.87 15.7 The insurer sidesteps financial industry woes thanks to a more conservative investment portfolio.
Hospira (HSP) $41.75 $35 $45 $2.47 16.9 Hospira is a defensive healthcare pick that benefits from management’s focus on margins.
Schering- Plough (SGP) $20.37 $17 $34 $1.52 13.5 A restocked pipeline and recent acquisition should prime the pharmaceutical maker’s earnings in the next year.

DATA AS OF 2/1/08 SOURCE: YAHOO FINANCE

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