Sunday, November 25, 2012

"Time to recap all my investment tenets onto one blog page. Also a couple of Pharma picks"

Dow Jones Industrial Average 13,009.68  (UP) Week Ending 11-23-2012

Cornelius Vanderbilt, shipping and transportation magnate, and pictured to the left on the stock certificate of his The New York Central Railroad surely had established ideas about the best business practices to be successful. 

Over the last 157 blogs, I have worked to establish consistent best practices for stock purchasing based on fundamental analysis of businesses which will facilitate the best total return over a 1 to 3 year period. The following are my rules all together in one place for the first time:

Rule #1. Never buy a stock that is priced under $5.00. Most mutual funds have rules in their charters that do not allow them to purchase stocks under $5.00. It is very tempting to want to buy these shares.

Rule#2. If you trade a stock twice, and have gains both times, do not go back to the well and buy it a third time. 

Rule#3. Only buy stocks that have earnings above $0.10 per share annually. This will keep you out of a lot of bad places.

Rule#4. Try to buy companies that are not loaded down with debt, or even better yet, have zero debt.

 Rule#5.  Purchase only stocks with a Return on Equity of 15% or higher

 Rule#6. Purchase only stocks that have a PEG Ratio of less than 1.50 .

These are the six that are in place at the current time as of this writing and others may be added in the future. So here are a couple of pharma stocks that meet all these rules.

Shire PLC ADS (Symbol SHPG, $86.63), is a Dublin, Ireland based pharmaceutical company with very good performance numbers. It meets our criteria with a
Return of Equity of 28.01% and a PEG ratio of 1.18.

Earnings per share are projecting for 2012 at $5.92 per share and for 2013 looks like $6.54 per share. Shire PLC can be bought right here at this price, quite a bit off its 52 week high of $108.79. The company has had 5 year sales growth of 23.69% and 5 year earnings growth of 231.08% and yet only trades at a current PE ratio of 14. 

Alexion Phamaceuticals Inc. (Symbol ALXN, $94.71) feels expensive here. But the PEG ratio on the stock is 0.99, so they must be growing their business very rapidly. It also meets my criteria for Return on Equity at 15.80. 

The fact is that ALXN has had a 5 year sales growth of 199.32%. Their projected earnings growth long term is 35.5%. (All stats from The high price for the year is $119 per share, so you probably should phase into this stock with small purchases because it could have a lot of volatility here in the next few months. This stock is no secret and there are a lot of traders in this stock that come in and out, so just be careful on your entry points.  The 1 Year Total Return on the stock is 48.29% and the 3 Year Total Return is 324.52%, so you have a good track record here with ALXN.

So if you cannot afford to start your own shipping company like the "Commodore" ,Cornelius Vanderbilt, or your own railroad like "The New York Central" ,  you can start building some capital by investing some money in these two profitable pharma companies. 

I wonder what Cornelius would be investing in now if he was still around? Maybe US Energy companies or the railroads or pipelines that transport their fuels?

 Happy Totensonntag to my German and Lutheran readers out there today. We all think about our loved ones that are gone, this time of year.

Guten Nachmittag,



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