From time to time we at StreetAuthority propose investments in
"controversial" stocks that many of our readers may feel uneasy
about. I'm talking about so-called "sin" stocks like tobacco,
gambling and the like.
Make no mistake, these companies are often profitable for
investors. Studies show that these stocks often beat the market.
And it's our job to identify the most profitable opportunities
out there -- no matter what they are.
But we always try to make it clear that if you're not comfortable
investing in these companies, that's perfectly fine.
Today, however, I'd like to turn that idea on its head and talk
about an investment that helps fight the sin.
In her May issue of
Stock of The Month
, Amy Calistri wrote about an unsettling trend regarding heroin
use in the United States.
Specifically, Amy's research found that the number of heroin
users in the U.S. is rising... and quickly.
On April 29, Fletcher Allen Health Care admitted 8 patients
for heroin overdoses. In other words, it was an average day in
the emergency room. The hospital is not located in Detroit,
Camden, Baltimore or Chicago -- the cities we sometimes
associate with high crime and drug use. Fletch Allen Health
Care is located in Burlington, Vermont.
In January, Vermont Governor Peter Shumlin spent his whole
State of the State Address on the heroin crisis crippling his
state. In 2013, twice as many people died in Vermont from
heroin overdoses as did in 2012. And Vermont is not alone.
In Missouri, heroin overdoses increased 175% between 2007
and 2010. Heroin overdose deaths have tripled in Texas over the
past 15 years. Heroin-related deaths rose 48% in Connecticut
from 2012 to 2013.
It is estimated that between 2007 and 2012, the number of
heroin users in the United States grew 79%
So why is heroin becoming so popular?
The answer, while grim, is simple. As states have started
cracking down on "pill mills" -- or facilities disguised as
medical clinics that are really in the business of providing
opioids to non-medical users -- prices for illegally obtained
prescription drugs like Oxycontin and Vicodin have started to
rise. As a result, more and more users are switching to heroin as
At the same time, the flow of "cheap" Mexican heroin into the
U.S. has soared. It's estimated that heroin production in Mexico
grew from 6.8 metric tonnes in 2002 to 50 metric tonnes in 2011.
The supply increase has not only augmented heroin availability,
but also dramatically reduced the drug's price.
This alarming trend led Amy to recommend prescription drug
Hospira (NYSE: HSP
Stock of The Month
subscribers in May. The company is one of the few to produce the
drug Naloxone (brand name Narcan), which is used by addicts and
treatment centers the world over to reverse the effects of opiate
It turns out Amy's research was spot on. On July 30, Hospira
released its full financial results for second quarter 2014,
where the company managed to smash earnings estimates by a
whopping 29% -- reporting earnings per share of $0.78 vs.
expectations of $0.56. Much of the company's success was
attributable to growing sales volumes from specialty injectable
pharmaceutical products like Naloxone.
After the announcement, Hospira shares jumped 8.3%...
While HSP gained 15% for Amy and her followers, she still sees
upside in the stock.
Even more -- there are tailwinds (other than rising heroine
usage) that should ramp up demand for Naloxane.
First on the list: government support.
To combat the alarming rise in drug overdoses, state and local
governments are taking bold steps to put Naloxane in the hands of
everyone from first responders to good Samaritans.
Even the federal government is getting involved. On April 16,
U.S. Attorney General Eric Holder said, "Today, I'm calling on
all first responders -- including state and local law enforcement
agencies -- to train and equip their men and women on the front
lines to use the overdose-reversal drug known as Naloxone."
Seventeen states have already passed legislation
to expand the use and access of Naloxone, and the list is
growing. This should provide a nice boost Hospira's profits.
Second: monopolistic pricing power.
A number of manufacturers stopped producing Naloxone over the
years as they pared down their non-core holdings. Demand for the
drug had been low for a long time. And as a generic drug, it had
little pricing power. But that's changed.
In 2008 -- the same year drug overdoses surpassed auto fatalities
as the leading cause of accidental death in the United States --
Hospira raised the price of Narcan by 1,100%.
Of course Narcan isn't Hospira's only drug. In fact, as of March
31, Hospira had 68 generic compounds in its development pipeline.
For the quarter ending in June, Hospira racked up over $1.14
billion in revenue, up 10.7% from the same period a year earlier.
Net income more than doubled to $0.42 per share. The report
surprised Wall Street. But Amy wasn't surprised -- Hospira has
beaten Wall Street expectations each of the past five reporting
Risks to Consider:
Generic manufacturers have less legal liability regarding
drug side effects. They do, however, incur higher costs and risks
from patent-related lawsuits. Drug developers work hard to keep
extending their patent protection by making minor modifications
and form factors. Generic manufacturers often have to take them
to court to challenge the validity of their patent claims.
Action to Take -->
While Amy recommended HSP back in May, the story's only gotten
stronger coming off a great 2nd quarter. Despite a 15% gain so
far, the stock is still trading below her $63 target price.
What if your portfolio had an 85% win rate and clocked annualized
returns as high as 510% -- and you only had to spend 12 minutes
per month managing it? That's what Amy Calistri's
Stock of the Month
subscribers are enjoying right now each and every month.
to see how.
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