World Explorer

look for the company to grow earnings about 15% annually over the next three or so years.

What’s your next largest holding?
Roche Holding AG (OTC: RHHBY), the Swiss pharmaceutical company, is our second biggest position. One key point with the company is its development of cancer-fighting compounds including Avastin. Avastin was originally a colon cancer product but has also proven effective in treating pancreatic and breast cancers as well. Thanks to products like these, Roche has a good entry point with a lucrative market–cancer specialists–and has not been affected by tougher FDA guidelines as other peer group members have. Roche is growing earnings at 17% to 20% a year and has a price-to-earnings multiple of 17 by our calculations, which we find attractive alongside its peers. Our thinking is that the company has been unfairly discounted because of the pharmaceutical group’s troubles with cholesterol and pain medicines.

Another drug company is on your list?
We also like GlaxoSmithKline plc (GSK), a British pharmaceutical company. The stock is very inexpensive and the market has overreacted to problems with its diabetes drug Avandia, which suffered from reports that patients taking it may be at higher risk for heart attacks. It’s similar to the way investors punished Merck by overplaying issues with Vioxx in 2004. Glaxo is now trading at 13 times its estimated 2008 earnings. It’s on track to grow revenues 3% to 4% annually and profits 7% to 10% a year over the next 36 months.