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Express Scripts Holding Company (ESRX), And More Favs From Janus Fund

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Janus Fund (JANDX) bares the name of the fund family behind it. The flagship offering focuses on growth. Three healthcare stocks that underperformed for the fund in 2012 still appear to have growth potential.

Growth

Janus Fund focuses on growth. In its search for companies with “earnings growth potential that may not be recognized by the market at large,” management starts at the ground floor. Building its research and portfolio from the “bottom up.” So each stock in the fund has undergone a thorough review.

In 2012, healthcare was the one sector that management pointed out as a notable trouble spot. Although its selections in the space lagged, it still believes a few holdings have notable prospects. Here are three that were still around at the end of February:

The Middle Man

Express Scripts Holding Company (NASDAQ:ESRX) shares took a nose dive toward the end of 2012 and have not yet recovered. The fund’s managers attribute the fall to the fact that the “company’s CEO said consensus expectations for earnings growth were too aggressive.” That’s a pretty obvious one, since telling the market that you aren’t going to live up to its expectations is generally frowned upon.

However, just because a company doesn’t do what the market expects in the near-term, doesn’t mean its long-term outlook is tarnished. Janus, for one, hasn’t changed its view of the company. In fact, the sell off could be a pretty good buying opportunity.

What’s to like? Express Scripts Holding Company (NASDAQ:ESRX) is the largest pharmacy benefits manager. It basically acts as a middle man, using its size to get better prices on drugs. With healthcare in The United States in a state of flux, and cost containment being a prime issue, Express Scripts appears to have a solid future.

“We believe that pharmacy benefit managers (PBMs) will enjoy revenue and margin expansion as a result of growing prescription drug spending, the wave of new generic drugs and the growth in specialty drug use.” As the largest player in the space, all of the benefits that Janus Fund’s management expects will likely flow disproportionately to Express Scripts Holding Company (NASDAQ:ESRX) and its shareholders.

Going Private

Perrigo Company (NASDAQ:PRGO) has a lot of operational risk at the moment. The company has been on something of an acquisition binge, buying several companies in a relatively short span. That means that integration issues are occupying top management and will be a key focus for the market if any problems trickle onto the top and bottom lines.

However, the company has a pretty unique niche. It’s the largest U.S. manufacturer of private-label over-the-counter drugs. There are two factors bolstering this area over the long term. Perrigo Company (NASDAQ:PRGO)’s direct customers, pharmacies, earn larger margins on private-label drugs than they do from third party offerings. So, there is a clear reason for them to expand their presence in this space.

Also, private-label products tend to be cheaper than their branded alternatives. Thus, customers have a clear reason to buy more of these products. This is particularly true when times are tough, like right now.

Assuming that the acquisitions work out, they could provide an additional boost. For example, the company recently entered the infant formula and pet food spaces. Both could be solid, though perhaps not spectacular, growth engines. And Perrigo Company (NASDAQ:PRGO) is building up its branded drug business, too. All in all, there’s good reason to expect growth in this niche operator’s top and bottom lines.

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