Bright Spots In A Tough Market - Page 2 of 2

Bright Spots In A Tough Market

their connection to consumer spending. In actuality, the exposure is less than 8% of Jabil’s sales. We like the management team and think that the company’s price-to-earnings multiple of 12 (based on 2008 projections) makes the stock cheap in light of a 17% average annual earnings growth rate we see going forward. We think the stock can carry an 18- to 24-month target of $30.

Is there a healthcare name that has caught your attention?
A stock that’s somewhat more controversial is Celgene (CELG), a biotech firm that sold sharply off of 2007 highs (above $70 a share) to around $50. The company has had a rough go in recent months because its multiple cancer drug, Revlimid, came under competitive pressures. We believe Wall Street overreacted and that the rival drug may have higher toxicity overall. In biotech, these types of quick blips provide very good entry points. We think the stock has an annual growth rate of more than 40%. It trades at a price- to-earnings multiple of 32 and our target price is $72.

How about a pick in more traditional businesses?
Whole Foods Market (WFMI) sells organic foods and private labels and has been very profitable. Still, the stock has been driven from the $70 a share range in early 2006, down to about $40 by the end of last year. Wall Street was concerned about its acquisition of a competitor and an investigation that it might violate monopoly regulations. The takeover was approved, but Wall Street hasn’t gotten back to the important parts of the Whole Foods story. With the number of food and contamination scares in the news, we think the company stands to benefit from growing customer loyalty. Whole Foods has seen a 20% growth rate slow to about 13%, but that’s still a substantial number. And with the stock trading at a price-to-earnings multiple of 22, we think shares can reach $57 in 12 to 18 months.

Profit’s Picks

    52-week Price Range      
Company (Ticker) Price Low High 2009Est. EPS 2009P/E Ratio Comment
Celgene Corp. (CELG) $49.61 $41 $75 $1.53 32.4 The biotech outfit’s cancer drug looks to stave off pressure from the competition.
Jabil Circuit (JBL) $13.90 $13 $28 $1.33 10.5 Minimal exposure to consumer spending means Jabil is priced at bargain levels.
Whole Foods Market (WFMI) $35.64 $34 $54 $1.41 25.3 America’s pickier about what’s in the cupboard, so Whole Foods stands to generate a loyal following.

Data as of 1/08/08 Source: Yahoo Finance!