Top picks 2012: Cubist Pharmaceuticals

A solid pipeline and possible buyout interest should buoy stock.

By TheStockAdvisors Jan 5, 2012 11:04AM
Image: Pills (© Sean Justice/Corbis)This post is one in a series in which over 50 newsletter advisors share their Top Picks for 2012

By Nate Pile, Nate's Notes

We have been recommending this stock since 1999, but this will be the first time that we have made Cubist Pharmaceuticals (CBST) a "top pick" for the coming year.

The drug company's early focus was on the development of "next-generation" antibiotics to treat "super bugs" that have become resistant to traditional therapies. Its lead product in this category, Cubicin, has on the market for several years now.

As the company's revenues have grown, management has taken the opportunity to expand into other "niche" areas as well. The company's mission is now to develop and commercialize products that address a variety of unmet needs in the acute care environment (primarily in the area of antibiotics).

In addition to a fairly advanced pipeline of new antibiotics, the company also has a number of agreements in place with other pharmaceutical companies. This allows it to both co-promote certain antibiotics sold by those companies, as well as to develop new compounds based on the technology libraries of other companies and research institutes. 

Cubist has a solid pipeline and strong revenue stream on the fundamental side, and its stock has shown some of the best relative strength versus other stocks in the biotech sector and the market as a whole over virtually any time period you choose to look.

And while the stock has tried our patience at times over the past 12 years, its current relative strength suggests a very strong reason to be bullish. Indeed, it appears to once again be gearing up for a long run that could result in another doubling or tripling of our money before it settles into a new trading range at higher levels.

While Cubist's current market cap makes it difficult to tell what sort of premium shareholders might receive in a buyout offer. However, it's worth noting that, on more than one occasion over the past 12 to 18 months, there has been "intriguing" action in the company's call options.

It is quite possible that 2012 will be the year that a large pharmaceutical company finally makes a public offer for Cubist. Please note, however: One should never buy a stock solely in the hope of a buyout. 

Meanwhile, we consider CBST a "buy" under $40 and a "very strong buy" under $36.

Steven Halpern's offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.

Tags: CBST


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