Forest Laboratories
Forest Laboratories, Inc. (NYSE:FRX) has looked solid in 2013, with shares up 23% on the year. The branded drugmaker got a big boost in late June with record fourth-quarter results that produced earnings of 28 cents per share, well ahead of the consensus estimate of 7 cents. Forest Laboratories, Inc. (NYSE:FRX) is in the early stages of a long-term growth cycle, expected to increase earnings by an average of 36% annually in the next five years. But in spite of those high expectations, Forest Laboratories, Inc. (NYSE:FRX)’s price/earnings-to-growth (PEG) ratio of 1.02 is a discount to its peer average of 1.21 and in line with the benchmark for value of 1.
Chesapeake Energy
Chesapeake Energy Corporation (NYSE:CHK) is looking like one of the best turnaround stories of 2013, with shares up a market-beating 51% on the year. That comes on the heels of a busy 2012 when activist billionaire Carl Icahn took a large stake and agitated for change, leading to the firing of the company’s founder and longtime CEO and the sale of assets to raise cash and support liquidity. Those strategic adjustments have paid off big, with Chesapeake reporting a 31% earnings surprise in its most recent quarter. Chesapeake is projected to increase earnings by 30% annually in the next five years and carries a 1.3% dividend yield.
Risks to Consider: Stocks that deliver big earnings surprises tend to carry higher expectations and trade at higher valuations. Any future earnings misses or weaker than expected forecast can weigh heavily on shares that have rallied on bullish growth projections.
Action to Take –> In spite of Chesapeake’s impressive 51% gain in 2013, shares still look undervalued, trading with a forward P/E (price-to-earnings) ratio of 16. If Chesapeake traded with the same forward P/E of 18 as its peers, shares would climb another 13%, making Chesapeake a buy below $27.50. Forest Laboratories, Inc. (NYSE:FRX) is expected to increase earnings by 36% annually in the next five years, targeting full-year earnings of $4.51 in 2018. If Forest Laboratories, Inc. (NYSE:FRX) simply traded with the same valuation as its peers, that would send shares soaring to $72, a 67% premium to current levels.
P.S. — It’s great to hold a stock long enough to ride a post-earnings drift higher — but it’s even better to find stocks solid enough to buy, forget about and hold — forever. My colleague Elliott Gue and his staff recently went looking for the absolute best “Forever Stocks.” After six months and $1.3 milllion worth of research, the team was successful.
The article 7 Stocks Set To Surge On Secret Earnings Pattern originally appeared on StreetAuthority.com and is written by Michael Vodicka.
Michael Vodicka does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of CHK in one or more of its “real money” portfolios.
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