Lenny Dystra recommends Forest Labs (FRX)

"The company develops, manufactures and sells both brand name and generic drugs and pharmaceutical products. Its two biggest drugs are anti-depressant Lexapro and Namenda, which is used to treat Alzheimer's and dementia.

Forest Labs' balance sheet is pristine with $1.7 billion in the bank and no debt. It has a number of phase III and phase II drug trials ending in the next year and half."-Stock Article Link

Currently trading at near it's low of $34.17.

Buy Forest Labs (FRX) and get 16% compounded annual return

Forest Labs (FRX) develops and makes branded and generic ethical drug products. It products include Lexapro, a single isomer version of Celexa for the treatment of major depression and generalized anxiety disorder; Namenda, N-methyl-D-aspartate antagonist for the treatment of moderate to severe Alzheimer's disease; Benicar, an angiotensin receptor blocker for the treatment of hypertension, and Benicar HCT, an angiotensin receptor blocker and diuretic combination product; and Campral for the maintenance of alcohol abstinence. The company also offers Sudocrem, a topical preparation for the treatment of diaper rash; Colomycin, an antibiotic used in the treatment of cystic fibrosis; Infacol used to treat infant colic; and Exorex used in the treatment of eczema and psoriasis.

HISTORICS
-0% debt and always been debt free that I can see since 1998.
-Cash reserves have increased from 1998 of $150 million to $1.53 billion dollars.
-ROE since 1998 are as follows, 6%, 11%, 14%, 20%, 24%, 31%, 26%, 24%, 17%.
-Revenue has increased since 1998 from $427 million to $3.4 billion.
-Capital expenditures went lower from $102 million in 2004 to $30 million.
-Book value has growth compounded 23% 1998 from $1.25 to currently $10.16.

FORECAST
Current earnings per share is $1.62 but the company is committed to it's year end forecast of $3.05 - $3.15 a share. If you take the low end of $3.00 and compound it by a 5 year growth rate of 10% (analyst predict 12% growth) multiplied by a conservative p/e of 16 (lowest p/e in the past 10 yrs) gives you a $78.59 in 5 years. At today's price of $37.83, that's a compounded rate of return of 16%.

By year end, if it hits $3.05 in earnings, multiply it by 16 p/e = $48.80. (29% ROI. 87% annualized) FRX beat expectations for the past 4 quarters. They also issued a 10%+ buyback program of 35 million.

RISK FACTORS
- faces patent expiration for two of it's principal products, Lexapro antidepressant and Namenda Alzheimer's treatment (combined sales accounting for 80% of revenue) expiring in 2012. Analyst are saying their pipeline is inadequate.

Dykstra: Ride Forest Labs' Confidence

Excellent Article of how FRX got started

With Forest Labs having 0 debt, 1.5 billion in cash, a 10% buyback program in place, beating analyst for the past 4 quarters, I believe the odds are in your favor. Remember, buy in small increments and in wide scales.