10 stocks to watch in the week ahead

Generic drug manufacturer Teva Pharmaceutical Industries (TEVA) has the wind at its back as it approaches the "patent cliff" in the U.S. drug market after 2015, when many blockbuster medicines will lose their patent protections.

Teva has a product line featuring 1,300 generic versions of brand-name drugs, as well as 70 potential new drugs in development. The U.S. market for generic drugs is expected to double to $540 billion in the decade through 2021, and demand is also rising in the developing world.

Teva makes generic versions of such brand-name medications as the antidepressant Prozac and Provigil, a sleep-disorder drug. Teva also has its own branded drugs, most notably Copaxone, a treatment for multiple sclerosis. The company has 56 pharmaceutical production plants worldwide, as well as 34 research-and-development sites. It has about 180 product applications awaiting final approval from the U.S. Food and Drug Administration.

Teva Pharmaceutical Industries appears on a daily ranking created using StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude stocks with a trading volume below 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.

Whether Teva can fully capitalize on patent trends depends on how smoothly it adapts to new leadership. Jeremy Levin, a former Bristol-Myers Squibb (BMY) executive, last week succeeded Shlomo Yanai as chief executive at the Israeli company.

Levin is a Cambridge University-educated physician who directed Bristol-Myers' strategy of forging partnerships and acquiring small companies to replace revenue lost with the expiration of the company's patent on its top-selling drug, the blood thinner Plavix.

A big part of Levin's job at Teva will be coping with the loss of exclusivity on Copaxone, the company's most-important drug, accounting for more than 20% of revenue. Teva's patent expires in 2015.

Levin said he will unveil a strategy for Teva's future later this year. Analysts expect him to continue Teva's push into the proprietary drug market, which was accelerated in 2011 with the acquisition of U.S. drugmaker Cephalon, a $6.5 billion deal that Teva described at the time as a "game-changer."

Levin has indicated his intent to move away from acquisitions in favor of organic growth.

One growth market for Teva is Europe, where industry analysts expect generic-drug penetration rates to climb. In the near term, though, that expectation is being challenged by austerity measures likely to significantly reduce government spending on health care.

Sluggish sales in Europe were a drag on Teva's first-quarter earnings, although growth in U.S. sales pushed up profit for the period by 13%. Teva attributed the U.S. gain to the launch of seven new generic products, as well as increased sales of branded drugs acquired in the Cephalon deal.

Of the 32 analysts covering Teva, 20 have a "strong buy" rating on the stock, two rate it a "moderate buy" and 10 have a "hold" recommendation.

Teva Pharmaceutical Industries has a StockScouter rating of 8, meaning the stock is expected to outperform the market over the next six months with less than average risk.

StockScouter beats the market

At MSN Money, we think the StockScouter rating system is about as good as it gets when you're trying to decide where to invest. StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.

The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility. Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.

In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.

An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 804% through April 30, 2012.

Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool. In this column, Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.