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Inside Wall Street


Why Genentech Is the Biotech of Choice

For investors who want a strong presence in the complex biotech universe, behemoth Genentech (DNA) is the stock of choice. So say some pros who predict biotechs will be next in line to rally. "Genentech is due for a big bounce on its technicals and fundamentals," says Carl Birkelbach of Birkelbach Investment Securities. Soaring to nearly 90 in early 2007, the stock then slumped, hitting 67 on May 27, 2008.

But at the May 30 American Society of Clinical Oncology meeting in Chicago, Genentech presented favorable new data on its products. And the stock rose, to 72.47 by June 4. Genentech, Birkelbach figures, will shoot to 100 in 24 months. He is impressed with Genentech's pipeline, with 15 compounds set to come out in two years and 30 within five. Genentech plans to seek approval for a new application for its chief drug, Avastin, for an aggressive brain cancer known as GBM. Avastin is now approved for first-time treatment of metastatic colorectal and breast cancers.

May-Kin Ho of Goldman Sachs (GS), who rates Genentech (a client) a buy, says Avastin's potential in other types of cancer--including ovarian, prostate, and brain, with a combined sales potential of more than $1.2 billion--"is underappreciated." Ho sees earnings of $3.17 a share in 2008, $3.82 in 2009, and $4.57 in 2009, up from $2.70 in 2007.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Building a Base Abroad

With its business booming, China Architectural Engineering has its hands full designing wall and roofing systems for government and commercial projects. But the Chinese company--which has traded on the American Stock Exchange as RCH but will move on June 9 to the Nasdaq with a new symbol, CAEI--is also busy outside China: 45% of its revenues come from Australia, Dubai, Qatar, the U.S., and European countries.

Michael Cox of Piper Jaffray (PJC), who rates it a buy, says CAEI's growth will stretch way beyond the Olympic Games because of robust orders in foreign markets. He expects the shares, now at 8.20, to rise to 13 this year, based on earnings forecasts of 39 cents a share for 2008 and 64 cents for 2009. Buzz Heidtke of MidSouth Investor Fund, which owns shares, says CAEI's order backlog of over $100 million bodes well for its future.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Hansen Natural Could Use a Tonic

When Hansen Natural (HANS) posted lukewarm first-quarter results on May 7, its shares dived from 35 to 28 in two days. But not everyone was concerned. The sharp drop presented "a compelling opportunity" to buy, according to Kaumil Kajrawala of UBS (UBS), who reiterated his buy rating on the maker of all-natural juices and the popular Monster Energy drink. The stock has since risen to 32.80. Kajrawala's price target is 53, based on his earnings estimates of $2.08 a share for 2008, $2.53 for 2009, and $2.92 for 2010.

Hansen topped BusinessWeek's 50 Hot Growth Companies this year (BW—June 9). Although "one-time issues" such as special marketing expenses pulled down profits, Kajrawala says its "core business remains strong." Alton Stump of Longbow Research also reiterated a buy, based on Hansen's "solid earnings and margin profile."

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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