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Tel: 206 601 7371 Three Year GNOSTAM LLC WEEKLY PERFORMANCE DATA: COMMENT: Performance suffered in last two weeks of February as the Greek and potential bailout of so called PIGS has depressed the resource stocks we are overweight,, the Fed has indicated that the gusher of free money for the banks is at an end, and the US$ has appreciated.  The Euro crisis is endemic in my view.  The currency markets have taken a very short term view of the fiscal adequacy of not just the Greek 13% deficit as % of GDP, but also of what an eventual Greek bail out for Germany may mean for the rest of the countries with high fiscal deficits as a % of GDP.  The trade deficit of Spain with Germany was $16.3 billion, Italy $15.4 billion, Greece $6.4 billion and Portugal $3.4 billion in 2009.  As the Euro debt crisis unfolds, losses could spread in Euro zone, as Italy and Spain alone owe $449.6 billion to German banks.  In a way the German government has to bail out these countries unless it wants its banks to face a wholesale crisis.  The Euro will continue to weaken in my view to around the $1.20/Euro level. As a result our portfolio might underperform given sensitivity of commodities to US $ appreciation.  I still think some of the big commodity producers are cheap, like Vale do Rio Doce and Anglo American.  However, I may hedge some exposure if I sense that China is really headed for a property/banking melt down.

From Barrons, Dr. Reddy (RDY)  $24.61 Leslie Norton IF YOU STAGGER INTO YOUR LOCAL drugstore for a cheap hangover remedy, there’s a good chance it is made by Dr. Reddy’s Laboratories of Hyderabad, India (ticker: RDY). Founded in 1984, Dr. Reddy’s is one of India’s largest generic-drug manufacturers.

And while many companies are focused on emerging markets, forsaking the slow growth of the developed world, Dr. Reddy’s sees great opportunities in the U.S., thanks to the graying of America and looming cost controls. The stock is up more than 190% over the past 12 months, dramatically outpacing the Bombay Sensitives, and trades at a 50% premium to the index. Given likely tightening in India, there will be chances to buy it more cheaply.

Still, the outlook is bright, after a year that saw price pressures causing a writedown in the value of Dr. Reddy’s German operation, a voluntary recall in the U.S. of four generics, and more Food and Drug Administration scrutiny. Dr. Reddy’s has exited 30 countries where sales were small and focused on the U.S., Germany, the United Kingdom, India and Russia; and it’s inked a distribution deal with GlaxoSmithKline (GSK) for emerging markets. It’s also expanding production capacity. Despite the recall, Teva Pharmaceutical (TEVA) is a big buyer; indeed, Teva is Dr. Reddy’s largest customer. Disconnect: Somewhat unusually, Asian shares rose, even as U.S. and European shares slipped.

“We haven’t seen the kind of growth we have the potential for,” says G.V. Prasad, the company’s CEO, and son-in-law of founder Dr. K. Anji Reddy. (Satish Reddy, Dr. Reddy’s son, serves as chief operating officer.) Now, says Prasad, that’s about to change.

Bulls say Dr. Reddy’s is the best way to play $75 billion of patent expirations over the next few years. Late last year, it launched a generic version of Prilosec, the heartburn treatment. In the June quarter, it plans to launch generic versions of angina drug Arixtra, of Allegra 24, and possibly of blood-pressure drug Lotrel. These have limited competition. In fact, says Satish Reddy, “because of Dr. Reddy’s intellectual property on omeprazole Mg [generic Prilosec], the closest competition is one to three years away.” Prasad sees the U.S. business going to $500 million to $600 million in the next three years, and $1 billion thereafter. Even if the U.S. economy slows down, cost pressures will be on to “shift [to] the generics,” he says.

Dr. Reddy’s forecasts $3 billion in sales by 2013 (versus $1.5 billion for fiscal 2009 ended March), and a return on equity of 25%, up from 1.2% now. “The revenue target is feasible given product opportunities in the U.S., the rise of patent expiries, and scale-up in the Glaxo deal,” Nomura analyst AvinashGhalke wrote recently. He puts revenue at $2.1 billion in fiscal 2012.

Much has been made of Glaxo possibly taking an equity stake, though last week, Dr. Reddy said that is unlikely. Still, Dr. Reddy’s product pipeline underscores its value. It’s developing a line of biosimilars — generic versions of complex biologic drugs — and has already launched versions of lymphoma drug Rituximab and bone-marrow treatment Filgrastim.

All that, eventually, could push the stock as high as 1,363 rupees ($29.63), which is what BNP Paribas thinks it’s worth, or, on on Nomura’s sum-of-the-parts estimate, to 1,418 rupees. Last week, it traded at 1,142 rupees. Download ]]> http://gnostam-investmentadvisor.com/ http:/example.com/post-name/feed/ 0