Zacks.com Announces That Ian Wyatt Highlights the Following Stocks: Forest Laboratories, Merck, Pfizer, Bentley Pharmaceuticals and Impax Laboratories.

CHICAGO -- Ian Wyatt profiles one drug company avoiding the contagion of its peers and offering a unique buying opportunity. Read about Forest Laboratories (NYSE:FRX), Merck & Co. (NYSE:MRK), Pfizer (NYSE:PFE), Bentley Pharmaceuticals Inc. (AMEX:BNT), and Impax Laboratories (NASDAQ:IPXL). Ian Wyatt is editor of the Growth Report newsletter. Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=84

Here are the highlights from the Featured Expert column:

When Merck announced that it would have to pull Vioxx off the market, Wall Street once again turned its attention to the afflicted drug industry, which faces patent expirations, pricing competition and withering new product pipelines. The ripple effects forced him to back off one drug company he was positive on, but feels that now the company is offering an attractive buying opportunity. Read on for a prognosis for the pharmaceutical industry and discover one company seemingly immune to the woes of its peers.

For weeks I'd been growing more and more bullish on Forest Laboratories (NYSE:FRX) - one of the few drugs companies that appeared immune to the rest of the pharmaceutical industry's many ills. The company had consistently reported strong earnings and revenue growth over the past half decade and was often held aloft as a pillar of strong management. Yet, when news broke in early October that Merck & Co. (NYSE:MRK) was pulling its arthritis drug Vioxx off the market after studies showed it raised the risk of heart attack - and that flu vaccines would be in massive short supply this coming flu season -- I backed off.

Suddenly, chills were being felt throughout the pharmaceutical sector and as large cap drug stocks took ill, investors reached for their blankets and went into hibernation. At first I thought I had dodged a bullet. Now I'm not so sure as Forest Labs may actually be offering investors a unique buying opportunity.

The company, the only one to have appeared on Fortune's list of the 100 Fastest Growing Companies five years in a row, has certainly not had the easiest year. After climbing to new 52-week highs of $78.81 per share in the first three months of 2004, the stock slid to nearly half that, bottoming out at $41.10 by September before floating back to its current resting place near $47.00.

Though Standard & Poor's Equity Research maintains a "Hold" rating on the stock with a $53 target price, analysts have wondered if earnings will take a dip looking out into 2006 as Forest Lab's anti-depressant drug, Celexa, succumbs to competition from generic knockoffs. In the short term, S&P has raised the company's 2005 earnings estimate to $2.70 per share from $2.45 after Forest Lab's announced it would report second quarter fiscal year earnings of $0.75 per share, well ahead of previous estimates of $0.62.

Still, Forest Labs remains in an enviable position within the pharmaceutical industry. Three of its "ethical drug products" (as it calls them) are blockbusters - Namenda, which is used for the treatment of Alzheimer's, Lexapro for depression, and Benicar for hypertension. And even Celexa, for the moment, still contributes to the company's strong earnings and sales numbers. Moreover, in July, the Food and Drug Administration approved another drug, Campral, for treating alcohol dependence, while Forest is further hoping to use Lexapro to help patients with panic disorder.

With no debt, $700 million in free cash flow, $1.8 billion in cash on the books and earnings growing by 18 percent year over year, the company is in a far stronger position than nearly all its competitors. By comparison, Merck's most recent revenue numbers show a year-over-year decline of 56.6 percent while earnings slid 4.5 percent. Another competitor, Pfizer's (NYSE:PFE), profit margins are a slim 15.6 percent as compared with Forest's margins of 27.5 percent. Likewise, Pfizer's operating margins are 19.4 percent to Forest's 34.9 percent -- and Pfizer's most recent annual earnings growth? A minus 57.2 percent.

For Growth Report's more small-cap oriented investors there are, of course, other options. Bentley Pharmaceuticals Inc. (AMEX:BNT) has exhibited significant earnings and revenue growth over the last year and occupies a unique niche by operating through its subsidiaries in Spain - a large and growing market for generic drugs - as well as expanding its specialty pharma business into other parts of the US and European Union. Likewise, Impax Laboratories Inc. (Nasdaq: IPXL) has proven to be good solid generic drug company operating in the US. Impax has been very aggressive with having generics approved by the FDA, having just announced on September 28, 2004 that it received Food and Drug Administration approval for its generic version of pain reliever OxyContin. Analysts covering Impax expect revenue to grow by 63 percent next year, with EPS growing by 100 percent to $1.04 by 2005. With the stock trading at roughly $15 and change, the company's forward P/E ratio is a very reasonable 15 times earnings.

Read Ian Wyatt's complete commentary, along with the full details of his recommendations, by clicking: http://at.zacks.com/?id=85

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