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Inside Wall Street


On the Mend at J&J

Sales and earnings gains have been limping lately at Johnson & Johnson (JNJ),a diversified global leader in pharmaceuticals, medical devices, and consumer products. But the stock certainly is not on crutches. It's trading at 6o.64, up from 46 in March. Some pros predict it will rise even higher with the economic recovery.

"J&J deserves a much higher valuation, based on its stable earnings growth and below-average debt," says Terry Morris of National Penn Investors Trust, which owns shares. J&J trades at a depressed price-earnings ratio of 12.5 (on a projected 2010 profit of $4.88 a share) vs. an average p-e of 18.5 in 2005. Morris expects earnings to grow 8% annually for the next three to five years. And with a dividend yield of 3.2%, J&J's intrinsic value is 96, he figures.

J&J earned $4.57 a share in 2008. The consensus estimate for 2009 is $4.52, notes Zacks Investment Research. In 2011, J&J is expected to earn $5.39. Its 250 operating entities worldwide are projected to post sales of $60.6 billion in 2009 and $63.6 billion in 2010, vs. 2008's $63.7 billion.

Herman Saftlas of Standard & Poor's (MHP), who rates J&J a buy, says its diversified sales base and decentralized model will serve it well in the years ahead. He also sees promise in its pipeline of new drugs, such as Simponi for arthritis.

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.

Why Expedia Has Taken Off

Weak consumer spending should have clobbered Expedia (EXPE), one of the top online travel companies. But it hasn't. Instead, Expedia has thrived recently. The company beat analysts' forecasts in the second quarter despite a slowdown in travel bookings.

"Expedia's cost management, solid financials, and a favorable online ad environment" helped boost results, according to Zacks.com, which upgraded the stock to outperform from neutral. Expedia trades as if there were no recession, rocketing to 22.86 on Aug. 26 from 6 last Nov. 21. The key to future growth, he says, is its rapid expansion overseas.

Rating Expedia (a client) a buy, Justin Post of Bank of America Merrill Lynch (BAC) says it's gaining share as travelers increasingly turn to booking their trips and hotels online. Post sees Expedia earning $1.26 a share in 2009, $1.43 in 2010, and $1.58 in 2011, up from $1.25 in 2008.

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.

A Biotech Tackles Anemia

Hardly a household name, AMAG Pharmaceuticals (AMAG) is nevertheless catching many an investor's eye. The stock defied the odds when the market was in a downspin: It zoomed to 58 on July 1, up from 18 in November. It has since eased to 42.28, but analysts see the stock advancing again since the Food & Drug Administration's approval in June of AMAG's Feraheme. This is an injectable treatment for iron-deficiency anemia in chronic kidney disease.

Analyst Mark Monane of Needham (it did banking for AMAG), who tags the stock a buy, says AMAG has the opportunity to use Feraheme in both the dialysis and nondialysis markets.

Yaron Werber of Citigroup Global Markets (C) also rates AMAG a buy, with a 12-month target of 65. He says many blood cancer patients suffer from chronic kidney disease, and this represent a substantial market for Feraheme.

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.


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