By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 2/8/10 Sign up for free Cabot Wealth Advisory e-newsletter
One rule of momentum investing says that growth stocks that can hit new highs, even when the broad market is weak, are likely to do even better when the pressure comes off the broad market.
Think of it like a coiled spring; as soon as the market's pressure eases, the coil explodes higher. Many growth stocks do something similar.
So last week, as the broad market was tanking, I ran a quick screen, and found a handful of resilient names. Most interesting to me was the strength in healthcare stocks. In effect, investors are now saying that with the much-debated health care bill dead in the water, corporations will be able to carry on in their usual money-making ways. Here's one of my favorites.
Perrigo (PRGO) is the largest U.S. maker of store-brand over-the-counter drugs, making and marketing over 1,300 store brand products and over 250 generic products. These include cough and allergy medicines, gastrointestinal drugs, analgesics, dietary supplements and smoking cessation products.
The company has grown revenues every year of the past decade, and grown earnings every year since 2006. Last Tuesday, it reported fourth quarter results, and they were terrific. Revenues grew 9% to $583 million, while earnings shot up 56% to $0.70 per share. Analysts had been expecting $0.66. Also, the after-tax profit margin was a hefty 11.1%, the best in many years.
In response, buyers bought the stock heavily, pushing it up from 44 to 46 on more than double normal volume. Equally important, this marks a clear breakout above the stock's 2008 peak of 43. I think it has further to run.
Editor's Note: Discover the strongest stocks in the market with Cabot Top Ten Report! Editor Michael Cintolo combines our proprietary Optimum Momentum stock-screening tool with his expert growth stock advice to select the top 10 stocks in the market each and every week. Click here for more information.
Timothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.