The "Motley Fool" correspondent Matt Koppenheffer said today that the 20% plunge in the share price of Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) makes it worth buying.
"While many big pharmaceutical companies, like Pfizer Inc. (NYSE: PFE; LSE: PFZ) and Merck & CO. (NYSE: MRK) , have been facing major concerns of late as they await the expiration of patents on some of their largest revenue generators, Teva finds itself in a very different situation. As the leading generic-drug maker, Teva actually benefits from the expiration of big pharma patents as it formulates cheaper alternatives.
"The company is in a particularly good position as many different stakeholders in the US health-care system look to lower costs. As my fellow Fool Jim Mueller put it a year ago: "[Teva] takes advantage of governments', insurers', and employers' desire to rein in some of the rising costs of health care by offering cheaper alternatives to many prescription drugs."
Koppenheffer concludes, Teva has traded at a premium valuation to the patent-focused drugmakers. When I took a look at the stock's valuation back in early June, I wasn't overly impressed, even though I liked the returns expectations enough to buy a small position. However, the stock's price has fallen more than 20% since then, and, all else equal, when the purchase price falls, the expected returns rise. I'm not convinced that the prospects for the business have changed drastically since June, so I was excited to be able to buy more of this quality name at a lower price."
Teva's share price has fallen 42% over the past 12 months. Nonetheless, none of the 32 analysts polled by "Bloomberg" advised selling the share when it was at its peak in March 2010, and they still hold this position.
Teva's share price was flat on Nasdaq on Friday at $39.70, giving a market cap of $35.4 billion, and rose 1.7% by midday on the TASE today to NIS 141.
Published by Globes [online], Israel business news - www.globes-online.com - on August 14, 2011
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