A Pharmaceutical Stock with 20% Earnings Growth Potential

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TEVA Teva Pharmaceutical Industries Ltd. (ADS)

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July 22, 2009

Earlier this week, someone made a big mistake in Washington: They told the truth. Perhaps this was a rookie mistake, but Neil Barofsky, the guy in charge of bean-counting for the TARP program, said that America's total liability under these programs is $23.7 trillion.

Yikes!

That's a number that simply staggers the mind. Think of it this way: It's roughly equal to $80,000 for every man, woman and child in the country. Barofsky also aimed his guns right at the Treasury Department. He said that they have "repeatedly failed to adopt recommendations" to grant the "highest degree of accountability and transparency."

Wow, you don't often hear that kind of blunt talk, especially from DC. I'm surprised Barofsky still has a job. However, I can't say that this news surprises me at all. The fact is our government has bitten off more than it can chew. Heck, it's bitten off more than a team of pandas can chew. This is exactly why I've been telling investors that they must cut back on their risk to the U.S. dollar.

I don't know exactly when it will happen, but the dollar is due for some serious pain. This will impact stocks, bonds and currencies–and it's precisely why I favor diversifying abroad, and one of my favorite countries to invest in right now is Israel.

The Israeli economy is a powerhouse of innovation. In fact, Israel is one of the world leaders in non-U.S. companies listed on the Nasdaq. Plus, their economy is showing definite signs of improvement. Just recently, the Bank of Israel's economic index showed its first increase in a year.

Recessions are Boomtimes for Generic Drugs

One Israeli company I like a lot is Teva Pharmaceutical Industries (TEVA). This is one of the world's leading generic pharmaceutical companies, and it's cashing in big-time as consumers look to cheaper alternatives for their medication.

Teva makes generic versions of hundreds of brand-name antibiotics, heart drugs, heartburn medications, and countless other treatments that include equivalents of such blockbusters as antidepressant Prozac and osteoporosis drug Fosamax.

Business is booming right now and should see continued growth across 2009, since people will cut out just about any expense before they forgo their prescription meds.

Even as the rest of the market stumbled in the first quarter, Teva's earnings nearly tripled to 51 cents a share from 18 cents in the same quarter a year ago. During the same period, the company's sales rose 22.6% to $3.15 billion. A stronger greenback during the first quarter hindered Teva's sales by $200 million, but since the dollar has weakened considerably in the second quarter, I expect that the company's sales will benefit from a "currency tailwind."

I also like that the stock is inches away from breaking out to a new 52-week high. Look for the next earnings report on July 28. I'm expecting EPS growth of at least 20%.

I rate Teva Pharmaceutical Industries a B, or solid buy.

More from Louis Navellier:

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