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LIVE BETTER WITH THESE HEALTHCARE & BIOTECH PICKS

Illness is a fact of life. That will never change.

The same cannot be said about healthcare and biotech. Improvements in medical equipment and research, advancements in technology, and the fast-tracking of breakthrough drugs make it a constantly changing, ever-evolving environment. While this may be what makes it an exciting time for some investors, it can also serve as a cause for concern for others. This is why we’ve asked the nation’s most respected and well-known newsletter advisors for their favorite healthcare picks to assist you.

As always, we caution you to use these ideas only as a starting place for your own research and only buy stocks that meet your own personal investing criteria, your risk parameters, and your time horizon.

Importantly, these healthcare picks represent each advisor’s current outlook. As fundamentals change during the rest of the year, a favorite “buy” can become a “sell.” As such, it is up to each investor to monitor future developments at these stocks to be sure that the reasons behind buying them remain in place.

We would also emphasize the importance of diversification. No one advisor is always right and there is no guarantee that any individual recommendation will succeed; you can also minimize your risks by considering aggressive stocks featured in this report for only a portion of your overall portfolio.

We also encourage you to visit MoneyShow.com on a regular basis. Everyday, we feature new investment ideas from the top advisors. There’s no better way to follow the ongoing advice and favorite stocks from the very best investment newsletter advisors.

We wish you the very best for your investing for the rest of 2015.

Steven Halpern Editor, Top Pros’ Top Picks

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Contents Click on page numbers to go directly to each article

A Trio of Healthy REITs: Omega Healthcare Investors, HCP, & Senior Housing Properties Trust 4By Richard Stavros

AbbVie: Best Is yet to Come 5By Jimmy Mengel

AMN Healthcare: A Healthy Workforce 6By Jim Oberweis, Jr.

Bill Ackman Eyes Valeant 7By Jay Taylor

Biogen: Patience is Key 8By Stephen Leeb

Biotech Bets: Gilead and Illumina 9By Mike Cintolo

Deal Making Boosts Novartis and Glaxo 10By Benjamin Shepherd

Endocyte: High Risk in Biotech 11By Bret Jensen

Gilead: Low PEG, High Profits 12By J Royden Ward

Healthcare REITs for Health Gains: Omega Healthcare Investors & Medical Properties Trust 13By Briton Ryle

Hologic: Targeting Women’s Health 14By David Toung

Incyte: Best-in-Class Cancer Play 15By John McCamant

Johnson & Johnson: Dollars and DRIPs 16By David Fish

Lannett: A ‘Fool Ratio’ Strategy Buy 17By John Reese

Medical Properties: A REIT with a Difference 18By Mark Skousen

Neurocrine & AbbVie: High Risk and Reward in Biotech 19By Joe Duarte

Powell’s Picks in Pharma: Bristol-Myers Squibb & AstraZeneca 20By Jim Powell

S&P Eyes Healthcare M&A: Align Technology, Haemonics, and Masimo Corp. 21By Todd Rosenbluth

Upside’s Best Buys in Clinical Research: ICON & Parexel 22By Richard Moroney

Wound Care Boosts MiMedx 23By Tom Bishop

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A TRIO OF HEALTHY REITS: OMEGA HEALTHCARE INVESTORS, HCP, & SENIOR HOUSING PROPERTIES TRUST

We carefully screened the REIT universe to come up with strong candidates based on diversification, size, occupancy rates, growth, market valuation, and dividend and earnings history.

Included in our portfolio are three healthcare holdings. We believe healthcare REITs are the best investment within the REIT category right now and for the foreseeable future.The graying of America represents the best bankable demographic trend in the income-investing world.

The elderly population in 2030 will be twice as large as in 2000, increasing from 35 million to 72 million and constituting nearly 20% of the total US population, according to an analysis by Galliard Capital Management.

Omega Healthcare Investors (OHI) provides financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities in the United States.

OHI is one of the most solid healthcare REITs, having delivered consistent annual growth in dividend, revenues, and funds from operations for five straight years. OHI yields 3.7% and is a buy up to $45.

HCP (HCP) is the number-three best buy for our Conservative Portfolio and a member of Standard & Poor’s 500 Dividend Aristocrats for steadily increasing its dividend for 29 years.

The premier healthcare REIT, HCP owns or holds interests in $22 billion worth of healthcare-related properties.

Senior Housing Properties Trust (SNH) owns independent living and assisted living communities, nursing homes, wellness centers, and medical office, clinic, and biotech laboratory buildings throughout the United States.

Most of SNH’s tenants are triple net leased, which reduces management costs and makes the trust’s cash flow steadier.

With triple net leasing, each tenant pays rent and is responsible for all taxes and insurance as well as operating and maintenance costs. Its current yield: 7.13%. SNH is a buy up to $30.

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By Richard StavrosEditor

Global Income Edge

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AbbVie: BEST IS YET TO COME

Chicago-based AbbVie (ABBV) discovers, develops, and commercializes advanced therapies that have an impact on people’s lives. AbbVie is an Abbott Labs (ABT) spin-off that was launched on January 1, 2013.

The company is poised for continued growth, despite the fact that its bestseller, Humira, is going generic next year. Humira is the single-biggest drug in the world. It is now bringing in a record $14 billion a year.

But once it does go generic not all is lost. Most analysts agree that it will be difficult for competitors to make a generic version of Humira. One reason is AbbVie was wise enough to secure hundreds of patents that cover the formulation and manufacturing of Humira.

It could use these patents—which don’t expire until 2022—to hold up any competitors in court, which will buy them several more years of $14 billion-plus paydays.

Once the generic competitors do make it through the legal gauntlet, analysts still only expect that they’ll steal around 15% of Humira sales, still a huge amount of money. But AbbVie is making sure it has a solid pipeline of stocks to make up the difference.

This year it released Viekira Pak, a treatment for hepatitis C. It has already banked more than $230 million during the first quarter and is projected to hit $3 billion in global sales by the end of the year.

AbbVie also acquired Pharmacyclics (PCYC) this year for $21 billion, which gives it the rights to the blood cancer drug Imbruvica. Blood cancer is a $24 billion global market and Imbruvica is expected to be one of the world’s top-selling cancer drugs.

AbbVie has five oncology drugs poised to launch over the next few years. It also has 20 compounds—or indications—in Phase II or Phase III development across diverse medical specialties like immunology, virology/liver disease, oncology, renal disease, neurological diseases, and women’s health.

The company has seen double-digit growth from key products including Synthroid, Creon, and Duodopa.

First-quarter sales of $5.04 billion were up more than 10%. First-quarter earnings rose 32% with a three-year EPS growth rate of 11%. This allowed the company to raise its EPS projections from $4.05-$4.25 to $4.10-$4.30.

Influential analysis firm Jefferies has just showered AbbVie in praise. It has added the company to the Jefferies Franchise Pick List, which represents the firm’s highest buy-rated US stocks. Jeffries put a $90 price target on AbbVie.

With a 3% dividend yield, we continue to buy AbbVie as part of a long-term dividend reinvestment program. It seems like the best is yet to come.

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By Jimmy MengelEditor

The Crow’s Nest

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AMN HEALTHCARE: A HEALTHY WORKFORCE

AMN Healthcare Services (AHS) offers services that include managed services, recruitment process outsourcing, workforce consulting services, and the placement of physicians, nurses, and healthcare professionals into temporary and permanent positions.

These solutions enable the company’s clients to successfully reduce staffing complexity, increase efficiency, and improve patient outcomes within the rapidly evolving healthcare environment.

AHS’ clients include acute and sub-acute care hospitals, community health centers and clinics, physician practice groups, retail and urgent care centers, home health facilities, and several other healthcare settings.

Increasingly, its clients seek innovative, proven, and capable partners that provide a strategic, sophisticated, and integrated clinical workforce approach that enables them to achieve high quality patient outcomes more efficiently.

The company’s breadth of hospital, healthcare facility, and other clients enables AHS to offer positions to healthcare professionals in all 50 states and in a variety of work environments and clinical settings.

Healthcare professionals choose temporary assignments for a variety of reasons that include seeking flexible work opportunities, exploring different areas of the country, and diverse practice settings.

Temporary assignments also allow healthcare workers to build clinical skills and experience by working at prestigious healthcare facilities and as a means of access into a permanent staff position.

In the company’s latest reported first quarter, sales increased approximately 36% to $327.5 million from $240.9 million in the first quarter of last year.

AMN Healthcare Services reported earnings per share of $.30 in the latest reported first quarter versus $.18 in the same quarter of last year.

Clients of Oberweis Asset Management own approximately 200,200 shares. These shares may be appropriate for risk oriented investors.

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By Jim Oberweis, Jr.Editor

The Oberweis Report

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BILL ACKMAN EYES VALEANT

In a recent speech at the 20th annual Sohn Investment Conference, Bill Ackman discussed a Canadian pharmaceutical company that he considered greatly undervalued.

Ackman was talking about Valeant Pharmaceuticals International (VRX), which he called an early-stage Berkshire Hathaway (BRK.B), referring to Warren Buffett’s holding company.

Ackman noted that Valeant Pharmaceuticals isn’t simply a pharmaceutical company. Instead, he called it a “platform company,” which is “incredibly talented at getting deals done.”

Ackman’s first major interaction with Valeant took place last year when he teamed up with the company in a failed attempt at a hostile takeover of Allergan (AGN), best known for manufacturing Botox. The attempt was ultimately unsuccessful, though Ackman was able to sell his shares of Allergan at a huge gain.

Ackman notes that the market tends to value companies based on the assets it already owns, resulting in the market undervaluing companies like Valeant and Berkshire Hathaway that have the “ability to make transformative transactions.”

Ackman notes three important facts about Valeant’s effectiveness. First, that Valeant has achieved greater than 20% return on the $20 billion it has invested in acquisitions since 2008.

Second, that Valeant’s management has accelerated revenue growth at all seven of the company’s major acquisition companies. Finally, Ackman notes that the company is very effective and efficient at achieving the acquisition synergies it forecasts.

He specifically referenced the company’s 2013 acquisition of eye care company Bausch & Lomb, a deal that valued the brand at $8.7 billion. With Valeant overseeing organic growth between 5% and 11%—and more than doubling margins—the brand is now worth more than $21 billion.

Don’t be scared by Valeant’s valuation. While its 12-month trailing price-earnings ratio is a hefty 81.7, the stock trades at only 19.6 times 2015 forward earnings estimates, an indicator of rapid growth potential.

The next Berkshire Hathaway, according to Ackman, is worth more than $330 per share. That’s more than 50% higher than where it currently trades.

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By Jay TaylorContributor Daily Profit

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BIOGEN: PATIENCE IS KEY

Novel drugs that disrupt the course of a disease require tremendous long-term planning, a great skill set, and shrewd willingness to weigh risks and rewards.

As such, biotechnology is an area that requires long-term thinking. Yet investors in Biogen (BIIB) have allowed short-term consequences to completely overwhelm their judgment. Despite the pressure under which it finds itself, Biogen remains one of our favorite healthcare stocks and our single-favorite drug company.

We don’t discredit anyone who sold on recent quarterly earnings results that reflected a major near-term disappointment from a growth driver, the Tecfidera oral drug, for relapsing MS.

Overall earnings increased by 55% however, only a few pennies short of consensus. And nothing suggests that Tecfidera will not continue to grow rapidly, so the company maintained its overall guidance.

The company also announced plans to spend some $2.5 billion for trial preparation and manufacture of an Alzheimer drug, for which only Phase 1 results had been reported. Investors’ reactions suggested they’d rather that the company hand them the money than take a calculated chance on an early-stage drug.

One opponent of this investor activist approach is Blackrock chief Larry Fink. As head of one of the world’s largest investment companies, Fink knows that the only way to really win is long-term, which requires patience. Invest in what patients really need.

Biogen bet and bet fairly big on first stage results, but what counts is the strength of the results. Statistically speaking, Biogen’s results stood quantum leaps ahead of extant Alzheimer drugs.

In the absence of meaningful results, the probability of such numbers was considerably less than one in several thousand.

One implication: a number of participants in the study actually noticeably improved in the predicted ways, less plaque on their brains and better cognitive performance.

In other words, Biogen’s willingness to invest in advance of larger studies was extremely well measured.

This treatment could prevent suffering and improve the lives of countless individuals, and meanwhile, could potentially save the US—and world—tens, if not hundreds of billions of dollars in healthcare expenditures.

We continue to aggressively recommend Biogen, confident that the company’s long-term planning will turn into short- and long-term results, alike.

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By Stephen LeebEditor

The Complete Investor

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By Mike CintoloEditor

Cabot Top Ten Trader

BIOTECH BETS: GILEAD AND ILLUMINA

Biotechs continue to thrive and none of them are growing revenue and earnings faster than Gilead (GILD). Sovaldi, Gilead’s groundbreaking hepatitis C drug, has been the primary catalyst, doing $10.2 billion in sales on its own in 2014.

That helped fuel a near-quadrupling of the company’s earnings per share last year ($2.04 to $8.09) and caused overall sales to more than double.

So far in 2015, Gilead’s growth is showing little sign of slowing down: EPS doubled in the first quarter and revenues increased 52%.

But Gilead’s success is not just about bottom- and top-line growth. Its deep pipeline of cancer drugs is also attracting investors. The company currently has 12 products in Phase 2 trials and seven products in Phase 3 trials.

It already had one cancer drug, Zydelig (for patients with relapsed chronic lymphocytic leukemia), approved for commercial use last summer, perhaps paving the way for others. Further, Gilead has enough cash on hand ($14.5 billion) to potentially buy up other promising clinical-stage treatments, as well as repurchase a ton of shares ($3 billion in the first quarter alone) and pay a small dividend (1.5% annually).

Few, if any, biotech companies feature a combination of growing current products and promising clinical-stage products quite like Gilead’s.

Illumina (ILMN) makes gene sequencers that will never be seen or touched by the vast majority of people, but they’re having as revolutionary an impact on our everyday lives as any product we know.

These sequencers speed up and improve genetic analysis and are key drivers of many breakthrough medications being developed today.

And Illumina dominates the market for gene sequences (including high-, mid-, and low-end versions).

This has led to an ever-growing base of business, which, in turn, drives ever-higher recurring revenues from consumable products used when running the tests. In the first quarter, 57% of revenues came from consumables.

Earnings estimates are just OK, but this company has a history of topping expectations; first quarter earnings of 91 cents per share topped estimates by a whopping 19 cents. Beyond the quarter-to-quarter numbers, the big idea here is that the genetics industry is still in its youth and Illumina likely has many years of rapid growth ahead of it, assuming management continues to pull the right levers. Given its track record, there’s every reason to believe they will. We like it.

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DEAL MAKING BOOSTS NOVARTIS AND GLAXO

Deal making in the healthcare sector is drawing a lot of attention, with more than $240 billion worth of mergers and acquisitions announced so far this year.

Novartis (NVS) and GlaxoSmithKline (GSK), both recommendations in our conservative model portfolio, recently completed a largely unprecedented asset swap.

Glaxo gets Novartis’s vaccine business and an interest in a new joint consumer business, while Novartis gets Glaxo’s cancer franchise.

As a result, Novartis will be a leader in the oncology field with 22 cancer medicines and the option to pick up cancer drugs under development at Glaxo.

Glaxo will also become a leader in vaccines, which are steady growers in terms of sales, and pick up an extra $6 billion which it plans to give back to stockholders by way of share buybacks.

This wheeling and dealing is good news for investors, particularly if you’re focused on income. For instance, Novartis currently pays out about 66% of its earnings in the form of dividends for a current yield of 2.7%.

Assuming both sales and margins remain fairly constant, Novartis could add about $340 million in earnings with the pickup of those cancer drugs, which would leave about $200 million to possibly be added to the dividend.

Even more cash could be freed up for payouts if Novartis is able to squeeze greater efficiencies out of those operations.

And Glaxo shareholders aren’t going to be left out in the cold either, getting an almost immediate bump thanks to share buybacks with plenty of room for dividend growth from the growing vaccine business.

We own both Novartis and GlaxoSmithKline, so we’re getting the best deal out of the asset swap since we’re really not losing or gaining anything in the process.

Over the long haul though, we’ll catch a tailwind from the fact that they’ll both be more tightly focused companies, which are uniquely positioned in fairly high growth markets.

Glaxo will now be the number one player in vaccines and vaccine sales at Novartis grew by 8% last year, largely thanks to its launch of the only meningitis B vaccine currently available.

Governments around the world, particularly in emerging markets, are already placing orders so that they can launch inoculation programs in the coming years.

By Benjamin Shepherd Editor

Income Without Borders

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By Bret JensenEditor

Small Cap Gems

Sales of Glaxo’s cancer drugs jumped by a third last year and Novartis recently launched two new cancer drugs of its own, both of which are expected to become go-to treatments. Sales of the cancer drugs it picked up in the swap could actually grow even faster in the coming years, since Novartis already has a major presence in the oncology field with a large global sales force to back it up.

Needless to say, we’re pleased with the deal and continue to rate GlaxoSmithKline a buy up $54 and Novartis a buy on any dips under $100.

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ENDOCYTE: HIGH RISK IN BIOTECH

Biotechnology is one of the few areas of the market where we’re still finding good potential for outsized returns.

There also seems to be an uptick in merger and acquisition activity, which should continue given the need of larger pharma companies to replenish their pipelines.

Endocyte (ECYT) is a small biopharmaceutical company with a market cap of just over $250 million. The company is currently developing therapies that target both cancer and inflammatory diseases.

Its technology uses small molecule drug conjugates (SMDCs) in combination with imaging diagnostics or therapeutic agents. Endocyte currently has several SMDCs in clinical trials at various stages.

The company and its shares have had a rough go of it recently. The stock had traded up to $25.00 within the last year.

The shares cratered in May after the Data Safety Monitoring Board recommended stopping the Phase III clinical trial of vintafolide for ovarian cancer due to lack of efficacy. Merck subsequently stopped joint development and returned the rights to Endocyte.

This is exactly why we focus on companies with multiple shots on goal as disappointing trial results are part of investing in the space.

But with risk comes reward and Endocyte has many things going for it and investment sentiment seems overdone to the downside at the moment.

The company has several early stage drugs in development and vintfolide-despite failing in late stage trials against ovarian cancer, has shown promise against other indications in early Phase II trials.

The company is using its SMDC platform to create several compounds that could potentially deliver various drug payloads for various indications. SMDCs allow use of increasingly potent drugs to treat different conditions.

In addition, most of the stock’s current market cap is made up by the cash and marketable securities balance on its books.

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For a small-cap biotech firm, Endocyte has decent analyst coverage. Eight analysts cover the company, and the mean price target of those analysts currently is just a little north of $13.00 a share, more than twice the current stock price.

Endocyte is going to require some patience from investors. Over the next 12-18 months, important milestones for three different developing compounds will be reached. Obviously, positive results from any or all of these trials could buoy the stock price significantly.

And given the company’s cash holdings, SMDC platform, and early stage pipeline, a buyout from a larger player cannot be ruled out.

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GILEAD: LOW PEG, HIGH PROFITS

Gilead Sciences (GILD) was founded in 1987 and is headquartered in Foster City, California. The firm’s Sovaldi, for the treatment of hepatitis C, became one of 2014’s biggest selling drugs in the world.

In October 2014, the FDA approved Harvoni,which offers slight improvements to Sovaldiin treating the hepatitis C virus.

In March, Gilead received approval in Japan for Sovaldi, which could be a huge win for the company because more than one million people suffer from the hepatitis C virus. In addition, Gilead has developed another important drug, called Zydelig, aimed at treating certain types of leukemia and lymphoma.

The recent approval of Zydelig by the FDA will provide Gilead with an additional exciting new drug to add to its growing portfolio of successful products.

Gilead Sciences has many more drugs in various stages of development, which will bolster sales and earnings for many years to come.

The furor over the high costs of Sovaldiand Harvoni continues; this has forced Gilead to lower its prices in the US and other countries.

However, in my opinion, the effects from the lower prices will be moderate and the company’s other new drugs will easily offset the adverse effects.

GILD sells at 12.1 times current EPS. Gilead initiated a quarterly dividend of $0.43, which provides a 1.6% yield. Cash flow is $16.5 billion per year and the balance sheet is strong with only $13.3 billion of total debt.

The PEG ratio is 0.51, which is extremely low. I expect GILD to reach my minimum sell price target of $137.21 within one year. Shares are clearly undervalued. Buy at the current price.

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By J Royden WardEditor

Cabot Benjamin Graham Value Investor

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By Briton RyleContributor

The Wealth Advisory

HEALTHCARE REITS FOR HEALTH GAINS: OMEGA HEALTHCARE INVESTORS & MEDICAL PROPERTIES TRUST

Omega Healthcare Investors (OHI) Omega Healthcare remains our favorite healthcare REIT and one of our favorite REITs in general. Of its revenues, 85% are contracted through 2020. OHI is growing faster—and growing its dividend faster—than any other healthcare REIT.

During the first quarter, Omega completed the acquisition of Aviv REIT, another healthcare REIT. Omega now owns over 900 properties in 41 states.

I had forecast 2015 earnings between $3.10 and $3.30 after the merger. Current estimates call for $3.00 2016 earnings per share should hit $3.18.

Omega has hiked its dividend for 11 straight quarters, which is nice. With a 6% dividend, strong potential for 20% annual returns, and an attractive forward P/E of 14, we continue to rate Omega Healthcare a strong buy.

We note that Omega will issue approximately 40 million shares, diluting the current number of outstanding shares by about 30%. We are raising our buy under price to $42 a share. We are also raising our 12-month price target to $51.

Medical Properties Trust (MPW) Medical Properties buys hospitals and then leases them to operators. It makes money on the spread between finance costs and rental income. The company typically aims for a 9% to 11% spread, though it recently made a deal with an 8% spread.

Our patience with the stock is paying off. In 2013, MPW grew its FFO (funds from operations) 7% to $0.96 a share and it says FFO will be $1.25 a share in 2015 based on current holdings and absent any new acquisitions. But that secondary suggests new acquisitions are in the works...

It will do about $500 million in acquisitions this year. And earnings estimates have been rising. At $0.88, the 2015 dividend will fall a bit short of our $1 forecast, but 6.4% at current prices is still quite attractive.

The company has managed something that is very rare: pricing a secondary offering of shares. Clearly, investors who participated in this 30-million-share offering see more upside for MPW. So do we. I have raised the buy under price to $16 and our 12-month price target to $20.

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By David ToungContributor

Argus Research

HOLOGIC: TARGETING WOMEN’S HEALTH

Hologic, Inc. (HOLX) focuses on osteoporosis assessment, breast-cancer detection, direct capture X-ray detectors for digital radiography applications, and mini C-arm imaging for orthopedic applications.

Its customers include hospitals, imaging clinics, and private practices, as well as healthcare organizations and pharmaceutical companies.

The company delivered outstanding fiscal 2Q15 results and, in our view, is poised for further strong performance going forward. With new operating initiatives in place, we think the company can sustain robust growth.

Management now expects adjusted FY15 EPS of $1.57-$1.59, up from a prior view of $1.54-$1.57. It has also raised its revenue forecast to $2.60-$2.62 billion from $2.57-$2.60 billion, implying currency-neutral growth of 5.8%-6.6%.

Based on the updated guidance and strong 2Q results, we are raising our EPS estimates to $1.61 from $1.59 for FY15 and to $1.74 from $1.71 for FY16. As such, we are boosting our EPS estimates and raising our target price to $43 from $38.

While improving market conditions benefited sales in the second quarter, we believe that the results also reflected stellar sales and marketing execution under the leadership of CEO Stephen MacMillan and other top executives.

While Hologic’s debt load remains higher than that of other med-tech companies in our coverage universe, we are encouraged by management’s efforts to pay down debt.

The company is also generating healthy free cash flow. As its balance sheet strengthens, Hologic should have more financial flexibility to make acquisitions or buy back shares.

HOLX shares trade at 19.5-times our FY16 EPS estimate, above the mean of 18.2 for our coverage universe of med-tech stocks.

We believe that HOLX merits a premium valuation based on its superior growth opportunities. We are reiterating our Buy rating and raising our target price by $5 per share to $43.

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By John McCamantEditor

The Medical Technology Stock Letter

INCYTE: BEST-IN-CLASS CANCER PLAY

The numerous breakthroughs occurring to treat various potentially fatal conditions—increasing survival and quality of life—have continued at a historical pace. Investors should take advantage when fear is being reflected in stock prices.

Incyte (INCY) delivered the goods—and then some—at the recent AACR meeting where the company presented eleven abstracts detailing its emerging small molecule cancer drug development pipeline.

The abstracts included characterizations of potential therapies for cancer, as well as data supporting the potential immuno-therapeutic activity of its portfolio of inhibitors.

In our view, Incyte has become the leading developer of small molecule cancer drugs with an industry-leading pipeline that is second to none.

Incyte is poised to start a very aggressive clinical development program with four different proof-of-concept combo trials that are expected to start in the second half of the year.

Epacadostat, in our view, is the crown jewel in Incyte’s outstanding cancer pipeline. This drug candidate is oral and safe, making it the ideal combo drug where safety is paramount.

Combo therapy of cancer drugs is the key to immuno-oncology as the second and third drugs synergize the treatment paradigm by not just killing tumors, but also reprogramming the immune system, which allows for cancer surveillance and prevention.

We believe INCY’s small molecule cancer pipeline has the best potential for creating the three+ drug combos that are expected to dominate the immuno-oncology cancer treatment space, making Incyte the most attractive cancer company in our universe.

We also believe Incyte is a possible takeover target; their pipeline alone would be transformative for any big pharma or biotech company. In our view, INCY is a strategy acquisition that could propel a cancer laggard to the top of the class.

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JOHNSON & JOHNSON: DOLLARS AND DRIPS

The sharp declines and rallies within the stock market so far in 2015 are enough to induce nausea in anyone unwise enough to follow them too closely.

Even worse, the resulting bouts of sadness and elation are signs that a person is simply investing emotionally or committed to the role of a trader (or speculator), rather than that of a long-term investor.

The cure to this state of self-induced manic depression is a healthy dose of high-quality dividend-paying companies and a conscious decision to exercise patience and let compounding do its wonders.

If you’re still in the accumulation phase, practicing a dollar-cost averaging approach should help to avoid the worry that comes with investing large sums at what could be inopportune times. In other words, the cure is all in your mind.

Founded in 1885 and listed on the NYSE since 1944, Johnson & Johnson (JNJ) is a major healthcare products company whose sales totaled $74.3 billion in 2014, with over 50% coming from foreign sources.

The company makes prescription drugs, baby care toiletries, contact lenses, surgical instruments, diagnostics, contraceptives, anti-infective products, and skincare items. Its consumer brand names include Band-Aid, Monistat, Neutrogena, Tylenol, Stayfree, and Reach.

Typically, the company spends at least 12% of its revenue on research and development. Earnings per share were $5.97 in 2014 and consensus estimates call for JNJ to earn about $6.19 per share in 2015 and $6.50 in 2016.

The annual dividend has been increased for 52 consecutive years, and now stands at $2.80 per share, providing a yield of 2.8%.

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Direct Investing

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LANNETT: A ‘FOOL RATIO’ STRATEGY BUY

Lannett (LCI) develops drug products sold to generic pharmaceutical distributors, wholesalers, chain drug stores, private label distributors, managed care organizations, and governmental entities.

The Motley Fool small-cap methodology seeks companies with a minimum trailing 12-month after tax profit margin of 7%.

The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. LCI’s profit margin of 34% passes this test.

The investor must also look at the relative strength of the company in question. Companies whose price has been rising much quicker than the market tend to keep rising. LCI, with a relative strength of 91, satisfies this test.

Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for LCI—146.94% for EPS and 70.53% for sales—are good enough to pass.

Insiders should own at least 10% of the company’s outstanding shares. A high percentage typically indicates that the insiders are confident that the company will do well. In the case of Lannett, insiders own 17%.

A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. LCI’s free cash flow of $0.54 per share passes this test.

LCI’s profit margin has been consistent or even increasing over the past three years, passing this requirement. It is a sign of good management and a healthy and competitive enterprise.

This methodology also strongly believes that companies, especially small ones, should have tight control over inventory. It’s a warning sign if a company’s inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more.

Inventory-to-sales for Lannett was 21.54% last year, while for this year it is 16.38%. Since the inventory to sales is decreasing, the stock passes this criterion.

The ‘Fool Ratio’ is an extremely important aspect of this analysis. If the company has attractive fundamentals and its ‘Fool Ratio’ is 0.5 or less, the shares are looked upon favorably.

These high quality companies can often wind up as the biggest winners. LCI—with a ‘Fool Ratio’ of 0.33—passes this test.

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Validea

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MEDICAL PROPERTIES: A REIT WITH A DIFFERENCE

Healthcare, of course, is the largest and fastest-growing segment of the US economy. However, Medical Properties Trust (MPW), based in Birmingham, Alabama, is different…by design.

In addition to having more than 100 properties in the United States and Europe, MPW provides capital to acute care facilities of all kinds through long-term triple-net leases.

Under these agreements, tenants pay all real estate taxes, maintenance, and insurance. And MPW will provide up to 100% financing to reduce an organization’s cost of capital.

By allowing healthcare operators to tap the value of their real estate and put it to work in facility improvements, technology upgrades, new staff, and even construction, MPW allows healthcare centers to operate both effectively and cost efficiently.

As the only healthcare REIT focused exclusively on hospitals, MPW is low risk. According to a recent MedPac report to Congress, less than 1% of hospitals close each year.

Business is good here. MPW has beaten analysts’ estimates by a wide margin in each of the last four quarters. And I expect this trend to continue. MPW should earn $1.28 a share this year and nearly $1.50 in 2016.

Don’t be alarmed by the current price-earnings (P/E) ratio of 52. Medical Properties is quite cheap, selling for just 11 times consensus earnings estimates for the next 12 months.

In addition to the upside in the stock, we always insist on getting paid well in this service. MPW is no exception. These shares currently yield 5.9%.

In short, this is a low risk, high-yielding trust with excellent upside potential. I’m expecting good news when it announces quarterly results the first week of May. So buy Medical Properties Trust at market. And place a protective stop at $12.

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By Mark SkousenEditor

High-Income Alert

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By Joe DuarteContributor

Smart Tech Investor

NEUROCRINE & ABBVIE: HIGH RISK AND REWARD IN BIOTECH

It is difficult to predict the direction of any move, but given the current market and the generally bullish tone of the biotech market, the odds favor an upside move.

Here is the story. Neurocrine Biosciences (NBIX) is in late Phase III trials for a drug aimed at treating endometriosis, a painful condition in pre-menopausal women that causes painful menses due to the growth of uterine endometrial tissue growing outside the uterus.

The company licenses the drug Elagolix to Abbvie (ABBV), formerly known as Abbot Pharmaceuticals. If Elagolix continues its success in clinical trials it would be worth $575 million in licensing fees to Neurocrine. Bullish analysts have predicted a potential $1.2 billion dollar market for Elagolix.

Elagolix has competition from oral contraceptives and other long-standing treatments that cost less.

There have been some studies that suggest that the margin of improvement of symptoms of Elagolix—although statistically significant—may not be clinically significant in a large enough number of patients.

Neurocrine remains a research dependent firm for its revenues and has no net income although it has narrowed its losses recently. NBIX has $31 million in cash on hand and 198 million in total assets with only 34 million in liabilities.

That puts it in a viable position at this stage of its development. Its market cap is $3.75 billion. It has a negative cash flow and sold $138 million worth of stock in 2014 to finance operations.

This is a highly speculative stock and it should be bought only by investors that are comfortable with higher than average risk. Yet, if Elagolix confirms its efficacy, and can deliver a pleasant surprise, we may see a nice move up.

More important, if the biotech sector starts a broad move, we expect to see NBIX go along for the ride. Neurocrine Biosciences looks ready for a potential breakout and could move to the $55-$58 area.

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POWELL’S PICKS IN PHARMA: BRISTOL-MYERS SQUIBB & ASTRAZENECA

If you have not yet invested in the industry, or if you would like to add to your holdings, these two companies also look very promising.

Bristol-Myers Squibb (BMY)The outlook appears to be particularly good for Bristol-Myers Squibb. Opdivo, a new drug that fights lung cancer and melanoma, has the potential to be a blockbuster.

During its clinical trials, Opdivo results were so positive the FDA did something very unusual: it approved the drug before the trials were over. BMY also produces Yervoy, another anti-cancer drug that saw a 36% sales increase last year.

Sales for Eliquis, an anticoagulant, jumped from $146 million in 2013 to $774 million in 2014. Last quarter, two drugs that fight Hepatitis C rang up $270 million in Japan alone, the first country to approve their use. Several other products are also doing well and more are on the way.

With its new products and cost-cutting measures coming into the picture, I think Bristol-Myers Squibb will become a top-performer. This blue chip pharmaceutical company also pays a 2.30% dividend.

AstraZeneca (AZN)I think investors with a longer-term outlook should consider AstraZeneca, a more speculative pharmaceutical company based in London but traded on the NYSE.

AZN is best known for Nexium, a heartburn medication, and Crestor, that treats cholesterol. AZN also has several other successful heart, lung, cancer, and neurological drugs.

More importantly for AstraZeneca’s future is the company’s advanced treatments that help the body’s immune system fight cancer.

The company has over 30 clinical trials underway for its new discoveries. Even if only a handful of the trials are successful, the profits should be enormous.

Drug development and promotion costs are high and they have been cutting deeply into AZN’s earnings. But that’s par for the course with pharmaceutical companies that are investing heavily in R&D. I think the short-term costs are likely to create excellent longer-term benefits.

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By Jim PowellEditor

Global Changes & Opportunities

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By Todd RosenbluthS&P Capital IQ Director of

Mutual Fund ResearchStandard & Poor’s

Marketscope

S&P EYES HEALTHCARE M&A: ALIGN TECHNOLOGY, HAEMONICS, AND MASIMO CORP.

S&P Capital IQ sees positive longer-term fundamentals for the healthcare equipment and supplies industry.

Factors behind this view include increasing demand for quality healthcare, an aging population, and rising R&D outlays, leading to a steady flow of new diagnostic and therapeutic products.

Further, improving US regulatory approval trends serve as a catalyst, spurring new potential revenue streams. Lastly, we believe there are a number of companies that could be candidates for takeover in the consolidating industry.

While the US market is the world’s largest and most profitable, S&P Capital IQ thinks there are significant growth opportunities overseas for medical device companies, particularly in emerging markets where the middle class is expanding, GDP is rising, and investments in healthcare are increasing.

Meanwhile, merger and acquisition activity has been increasing within the healthcare equipment and supplies industry in recent years. Healthcare equipment and supplies industry M&A deal count rose to 71 in 2014, marking the busiest period since 2011 when 74 deals were announced.

We think investors should look to small- and mid-caps that could make for easier tuck-in deals by large-cap healthcare companies and yet boost their growth prospects.

The following companies have market capitalizations below $5 billion and are considered undervalued based on S&P Capital IQ Fair Value.

Align Technology (ALGN)Align—an S&P mid-cap 400 company—designs, manufactures, and markets Invisalign, a proprietary system for treating malocclusion, or the misalignment of teeth.

Haemonics (HAE)Haemonics—an S&P small-cap 600 constituent—develops and manufactures blood processing technology; its systems help ensure a safe and adequate blood supply.

Masimo Corp. (MASI)Masimo—an S&P small-cap 600 constituent—develops, manufactures, and markets noninvasive monitoring technologies for oxygen levels and pulse and respiration rates.

In addition, exposure to small- and mid-cap healthcare equipment and supplies companies can also be obtained through SPDR S&P Health Care Equipment (XHE), an equally-weighted ETF with 66 holdings and a 0.35% expense ratio.

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While it has some exposure to large-caps such as Medtronic, the ETF’s median market cap is $1.9 billion. Two-thirds of the assets are in small- and mid-caps, including ALGN and MASI.

Another alternative is PowerShares S&P SmallCap Health Care Portfolio (PSCH), which is diversified across various healthcare industries.

Healthcare equipment and supplies is its largest weighting with 37% of assets, ahead of healthcare providers and services (29%) and pharmaceuticals (13%). The ETF has a 0.29% expense ratio and trades more actively than XHE.

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UPSIDE’S BEST BUYS IN CLINICAL RESEARCH: ICON & PAREXEL

Medical advances and an aging population suggest health-related spending will remain on an uptrend.

However, given their strong performance, now seems an especially bad time to chase second-tier health stocks. Today’s environment calls for selectivity. Two of our Best Buys are both involved in clinical research services.

ICON (ICLR) is our favorite healthcare pick. As a leading contract research organization (CRO), it performs clinical trials for healthcare companies.

The stock earns a 95 for Overall, second-highest among the 37 stocks in the life-sciences industry. Five of six Quadrix category scores exceed 80.

Analyst estimates have risen in sympathy with management’s bullish 2015 outlook, calling for per-share profits to jump 20% to 25% on sales growth of 7% to 9%.

ICON has reeled off 12 straight quarters of double-digit revenue growth, while operating profit margins have expanded in each of the past ten quarters. Pfizer accounted for 31% of ICON’s revenue last year.

ICON shares have soared 38% in 2015. That rally has pushed the trailing P/E ratio to a lofty 25, though it still offers a 4% discount to its five-year average and a 9% discount to its sector median. ICON is a Best Buy.

Parexel (PRXL) is another provider of clinical research services. Over the long-term, the company posts consistent growth in earnings and cash flow and enjoys a large backlog, as drug and biotech firms look to outsource research.

The stock slumped after reporting mixed results for its March quarter. Per-share earnings increased 18% to $0.66, matching the consensus.

Revenue rose only 2% and was below expectations but climbed 5% excluding unfavorable foreign currency movements. On March 31, the order backlog was $5.19 billion, up 5%.

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Upside

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For fiscal 2015 ending June, management trimmed its sales outlook but maintained earnings guidance, saying per-share profits should range from $2.65 to $2.83, implying at least 22% growth.

We also note that one of our favorite screens looks for short squeeze candidates. Paraxel has a short ratio above 10, which approximates the number of days needed to purchase all shorted shares based on average trading volume. Despite the mixed guidance, Parexel remains a Best Buy.

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WOUND CARE BOOSTS MIMEDX

This small-cap firm utilizes amniotic membrane derived from placentas donated by mothers after giving birth, (that would otherwise be discarded), to make tissue allografts.

MiMedx (MDXG) then stitches these grafts into place to heal wounds such as chronic bedsores that will not heal on their own.

It is the leader in its field, having supplied over 350,000 allografts for application in the wound care (primarily), surgical, sports medicine, and dental sectors.

The company uses its PURION cleansing process to remove all impurities that could cause rejection, resulting in a tissue matrix that can be repopulated by the patient’s own cells to heal hard-to-heal wounds. It markets these under the trade names EpiFix and AmnioFix.

The material has proven superior in clinical testing, comes in different sizes, costs less, and has the logistical benefits of being able to be stored at room temperature with a 5-year shelf life, eliminating the need for special storage equipment and thawing before use.

MiMedx announced a strong earnings report. In a nutshell, the company is hitting on all cylinders with the best yet to come in the remaining three quarters of this year. EPS came in at $0.04, a penny higher than the consensus and well above last year’s loss of $0.01. Revenue grew 108% to $40.8 million at the upper end of the guidance range. This is some serious growth going on here.

This is the 14th straight quarter of meeting or beating revenue guidance, so the company has a good handle on knowing what to expect from its business.

This tremendous growth rate justifies the current forward PE of 40 and an apparent 2015 exit run rate PE of more like 30. Growing as rapidly as it is, there is no sense looking at the trailing PE.

In the latest conference call, the company noted that it has added 25 reps to the field sales force in Q1, bringing the total to 193 compared to 140 just six months ago. So this will be one driver of progressively higher results as we go through 2015.

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BI Reasearch

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In addition, the company added 53 million covered lives during Q1. In all, commercial (insurance) lives coverage has grown to approximately 150 million. Plus, 36 million are now covered under Medicare and 29 states have now confirmed coverage under Medicaid.

So, all this growth in coverage (and sales reps) really ought to put the sales pedal to the metal as 2015 progresses.

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