By J. Royden Ward, Cabot Benjamin Graham Value Letter

To qualify for a spot in our model portfolios, companies must be leaders in their industries, have a history of rock-solid sales and earnings growth, and be led by outstanding management that will find ways to increase growth.

One such buy is Teva Pharmaceuticals (TEVA). Based in Israel, the company develops, makes and sells generic and proprietary drugs. It has become the largest producer of generic drugs in the world, led by management's aggressive acquisition and product-development programs.

The performance of TEVA has been disappointing for quite some time now. First, investors avoided the company because Copaxone, the company's largest-selling drug, which treats multiple sclerosis, will meet some new competition within the next few years, possibly spelling trouble for Teva.

However, Teva has developed a new oral MS drug, called Laquinimod, that will likely keep Teva in the lead on MS treatment.

Market share will likely diminish somewhat, though. The new drug's efficacy has been questioned, but management is confident it will become a blockbuster.

Next, Teva has had to close several small manufacturing plants, briefly, because of health issues.

In addition, the company had fewer drug launches in 2011 than in previous years. Teva still has a strong pipeline, with more than 200 new drugs in various stages of development.

New launches began to gather speed at the end of 2011 and should continue to accelerate in 2012.

Finally, Teva is acquiring companies and forming joint ventures at a dizzying pace.  Management sees an opportunity to buy drug companies at reasonable prices, which will help it to diversify geographically and product-wise.

Teva's latest proposed purchase of Cephalon will add more than 10% to sales in 2012 and offers rapid growth opportunities.

And its joint venture with Procter & Gamble in Europe, whereby P&G supplies the marketing and TEVA makes the drug and health products, could turn into a big win for both companies, especially if they expand the geographic scope of the venture.

Sales increased 11% and EPS rose 7% in 2011. Sales and EPS will likely increase 11% and 14% respectively in 2012 and accelerate thereafter.

At 8.1 times our 2012 EPS estimate of $5.56, TEVA shares are undervalued. The dividend has been raised aggressively during the past decade and now yields 1.9%.

We believe the stock price will increase to our Minimum Sell Price of $81.01 within two to three years. In our view, TEVA is a very low risk buy.

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