Dear Mr. Berko:
I want to own a stock in the medical field that will give me strong price appreciation in the next three to five years. I’m looking at Varian Medical or Johnson & Johnson. Please tell me which one you would recommend.
P.T., San Antonio
Dear P.T.:
Varian Medical (VAR – $51.50) butters my bagel. According to a couple of docs I know, VAR is the world’s largest maker of integrated cancer therapy systems, which treat thousands of patients every day. These cancer therapy systems are responsible for 85 percent of VAR’s $2.3 billion in revenues.
VAR is also a premier supplier of X-ray tubes and flat-panel, digital subsystems for imaging in medical scientific and industrial applications, from which management derives 15 percent of its revenues.
Management spends more than $130 million a year on research, and its high-quality products are considered the “ne plus ultra” by medical communities in Europe, South America, Asia and the U.S. And proof of the pudding is VAR’s revenues that have increased in each of the last 10 years, from $697 million to an expected $2.3 billion this year and in that same time frame earnings have increased from 41 cents a share to an anticipated $2.85 this year.
Include a 14.5 percent net profit margin, and we’re talking about some impressive numbers that have been favorably reflected in its share price, which has split (2 for 1) twice since 2001 and tripled in value since then.
Meanwhile, VAR has $20 million debt, a cash flow of $3.15 per share and does not pay a dividend on its 125 million shares. This is a squeaky-clean company with a sterling reputation in the world’s medical communities and widely held by some of the most prominent funds in the industry. And this is why VAR, which owns 71 percent of the U.S. market and 52 percent of the foreign market, could be a $100 stock in the next three to five years.
Johnson & Johnson (JNJ – $61) the largest health care products company in the world has been in business for more than 120 years. Revenues have doubled in the last decade; earnings, dividends and book value have nearly tripled, but JNJ’s 2.8 billion shares have remained almost flat as a pancake.
JNJ’s product diversity covers the landscape. Every day millions of consumers around the world purchase JNJ products at a supermarket, Walgreens, CVS, Rexall or convenience store.
Without question, JNJ’s consumer products are unfailingly the best. And every day, hundred of thousands of physicians, dentists, nurses, medical technicians and veterinarians around the world use a JNJ product.
And every single day of this year, these good folks spend $189 million for baby care, non-prescription drugs, sanitary care, skin care, surgical instruments, diagnostics, orthopedics, contact lenses and psychotic, anti-infective and dermatological drugs.
And every day JNJ makes a net profit before taxes of $37 million on their sale. And while these numbers are mind-boggling, the share performance has been enormously disappointing. During the past 10 years, JNJ shares have been unable to rise above the $70-$72 level.
JNJ would look nice in your portfolio, but nice doesn’t cut it when you want price appreciation. So buy VAR.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.
