Cramer: Allergan Is a ‘Fabulous’ Growth Stock

The Trade Behind Allergan's Pullback, Cramer

Cramer's analysis on Allergan shows that it's a high-quality stock that can be bought into weakness.

Investors are getting a rare opportunity to buy growth stocks at discount, Jim Cramer said Thursday. The “Mad Money” host has spent the week highlighting his favorite growth names of 2012. He added drug company Allerganto the list. Here are ten reasons he’s bullish on this “fabulous” growth stock.

1. Clear Growth Path: Almost all of Allergan’s products address issues created by the U.S.’s aging population that includes 72 million baby boomers, who are getting closer and closer to becoming senior citizens.

2. Market For Products: Allergan enjoys a big market for all of its products, Cramer said. The glaucoma market alone, for example, is worth $5.7 billion globally and growing at a 5 percent clip.

3. Competition: Cramer thinks Allergan can remain competitive because it’s very innovative. It continues to invest in research and development to invent new products, and continues to rejuvenate its existing product line.

4. Capital To Shareholders: Allergan currently pays a small dividend yield of around 0.2 percent, but Cramer noted it mainly spends money on research and development to fuel future growth.

5. International Expansion: This company has already expanded internationally, Cramer said, accounting for 40 percent of sales. It continues to expand into emerging markets, too.

6. Balance Sheet Strength: At the end of the fourth quarter, Allergan had $2.6 billion of cash and slightly less than $1 billion of debt, Cramer reports.

7. Is It Expensive?: Allergan currently sells for 19 times next year’s earnings estimates with a 14 percent long-term growth rate. It sells for less than 17 times expected 2014 earnings, which translates into a PEG ratio of 1.35 on next year’s numbers. Cramer thinks that’s reasonable for a growth company.

8. Strong Management: Cramer praised Allergan CEO David Pyott, adding he’s done a “terrific job.”

9. Secular Growth: Health care businesses typically do well in good times and bad, Cramer said.

10. Margin Growth: Cramer doesn’t think Allergan will be overpowered by raw costs and believes there are plenty of margin expansion opportunities.

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