Market Overview

PetSmart and Other Secular Growth Picks (ACT, MYGN, PETM, HLF)

Slow economic growth like the United States is experiencing now is ideal for secular growth stocks.

Bank of America defines secular growth in part as companies with earnings that have lower than average variability, as well as a forecast for between 10 percent and 20 percent earnings growth over the next three to five years.

Bank of America/Merrill Lynch mid cap stock picks that fall into this category include specialty pharmaceutical company Actavis (NYSE: ACT), molecular diagnostic company Myriad Genetics (NASDAQ: MYGN) and specialty retailer PetSmart (NASDAQ: PETM). Below is a quick look at how these three stocks have fared and what analysts in general expect from them.

Of note, Herbalife (NYSE: HLF), which has been in the news for its wrangling with Bill Ackerman, is also a Bank of America/Merrill Lynch pick in this category.

Actavis

This Parsippany, N.J.-based maker of generic, brand and biosimilar products has a market cap near $11 billion. Its forward earnings multiple is less than the industry average price-to-earnings (P/E) ratio, and the long-term earnings per share (EPS) growth forecast is more than 13 percent. Its return on equity is less than five percent, but the operating margin is greater than the industry average.

The number of shares sold short as of the mid-January settlement date represents about two percent the float. That is the lowest level of short interest since November.

Of the 22 analysts who follow the stock that were polled by Thomson/First Call, 17 recommend buying shares -- nine of them rate the stock at Strong Buy. The analysts' mean price target, or where they expect the share price to go, represents about 12 percent potential upside over the current share price.

Actavis shares have traded mostly between $82 and $90 since October. Still, the share price is more than 50 percent higher than a year ago. The stock has outperformed competitor Teva Pharmaceutical (NASDAQ: TEVA) and the broader markets over the past six months.

Myriad Genetics

This Salt Lake City-based company is a provider of molecular diagnostic tests to assess an individual's risk for developing disease, determine a patient's likelihood of responding to a particular drug, and more, and it sports a market cap of about $2 billion.

Its long-term EPS growth forecast is almost 15 percent, while the P/E ratio is less than the industry average. The return on equity is higher than 19 percent and the operating margin is more than the industry average.

The short interest is more than five percent of the float, and the number of shares sold short fell about five percent from the previous period.

Nine out of the 16 analysts surveyed recommend buying shares, six of them rating the stock at Strong Buy. They feel there is plenty of room for movement, as their mean price target is more than 18 percent higher than the current share price. That price target is a bit shy of the 52-week high set in November.

Shares have pulled back more than five percent in the past week, but the share price is still about 13 percent higher than a year ago. Because of the pullback, the stock has underperformed Abbott Labs (NYSE: ABT) and the broader markets over the past six months.

PetSmart

Based in Phoenix, Arizona, this provider of products and services for pets in North America has a market cap of more than $7 billion. The P/E ratio is higher than the industry average, but so is the operating margin. The long-term EPS growth forecast is more than 17 percent, and the return on equity is about 30 percent.

The short interest was about three percent of the float in mid-January, which was the highest number of shares sold short since October.

The consensus recommendation of the 24 analysts surveyed is to hold shares, and it has been for at least three months. But the mean price target is more than eight percent higher than the current share price and would be a multiyear high.

The share price has pulled back less than two percent in the past month but is still more than 25 percent higher than a year ago. Over the past six months, the stock's performance has been in line with Walmart (NYSE: WMT), but it has underperformed the broader markets.

Posted-In: Abbott Labs Actavis Bill Ackerman Herbalife Myriad GeneticsLong Ideas Short Ideas Trading Ideas Best of Benzinga

 

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