Manager endorses Caremark, Apple Computer

It's been a lackluster 2006 for the Excelsior Large Cap Growth Fund (UMLGX): Its 6.9% year-to-date gain has lagged the major stock indexes. That's because the 30-stock fund is overweight in health care and technology, said manager Thomas Galvin, and both sectors have been hobbled by the options backdating scandal.

But companies in both sectors are poised for a strong finish to the year, Galvin said today on CNBC's "Squawk on the Street."

"We're playing (health-care) stocks that have real strong product cycles right now, like Allergan (AGN, news, msgs) or Celgene (CELG, news, msgs)," he said.

"In technology, still Apple (AAPL, news, msgs) and Google (GOOG, news, msgs), but Corning (GLW, news, msgs) is a company with a product cycle (with) flat-screen TVs that's coming up to the Christmas season," Galvin said.

Galvin also recommended other stocks among the fund's core holdings, including prescription benefits manager Caremark Rx (CMX, news, msgs) and wireless products supplier Qualcomm (QCOM, news, msgs).

Caremark Rx

It's a prescription benefits manager, or PBM, the middleman between drug manufacturers and health insurance plans.

The Nashville, Tenn., company buys drugs from manufacturers and distributes them through a national network of more than 57,000 pharmacies and mail-order offices.

When it comes to generic drugs, being a middleman is a hugely lucrative place in the food chain. Generic drugs are popular because they're cheaper than brand-name drugs. Buying in bulk, the PBMs typically pay a few cents per pill, then bill employers a quarter, 50 cents or even a dollar a pill, The Wall Street Journal reported. Employers often don't know the spreads enjoyed by the PBMs.

Caremark and its chief PBM competitors, Medco Health Solutions (MHS, news, msgs) and Express Scripts (ESRX, news, msgs), could find themselves in an even more lucrative perch over the next five years, as brand-name drugs with $47 billion in annual sales lose patent protection.

But some states are pushing back against PBMs, weighing laws to force more financial disclosure from the middlemen, the Journal reported. And some employers are looking for ways to buy generics for a price closer to what they cost to make.

UBS analyst Ricky Goldwasser on Oct. 9 downgraded Caremark and its two chief competitors to "neutral" from "buy" on news that First DataBank, a publisher of prescription drug prices, would lower price estimates for more than 2,000 drugs by 5%. Goldwasser said the adjustment in published average wholesale prices used by insurers to base reimbursements was "likely to have some negative impact to their bottom lines." Goldwasser lowered his price target on Caremark to $58 from $71.

Caremark is among two dozen stocks for a midcycle slowdown identified by MSN Money's Jon Markman in an Aug. 16 column.

According to Zacks, the average brokerage recommendation on Caremark Rx is "moderate buy."

Caremark Rx on Oct. 24 was rated 7 out of 10 on StockScouter.

Celgene

The New Jersey company develops drugs primarily to treat inflammatory diseases and cancer. A subsidiary researches stem cell therapies.

Its best-selling product is Thalomid, used to treat a type of leprosy. The drug is in clinical trials to determine whether it's useful in treating certain blood cancers, inflammatory diseases and other disorders.

The company earlier this year reported improved sales of Alkeran, another anti-cancer drug, and increased revenue from the Focalin and Ritalin family of drugs used to treat attention-deficit disorders.

Earlier this month, Celgene said it would continue studying Revlimid for use in treating non-Hodgkin's lymphoma after patients in a study responded to the treatment. The drug is already approved as part of a second-line treatment combination for multiple-myeloma patients and for some transfusion dependent anemia patients.

Prudential Equity Group on Oct. 5 reiterated its "neutral" rating on the stock and $41 price target, saying the continuation of the Revlimid study was widely anticipated and did not change the investment firm's basic view of the drug.

Friedman, Billings, Ramsey on Oct. 9 raised its estimates for revenue from Thalomid sales in the third and fourth quarters. The investment firm reiterated its "outperform" rating on the stock and its $60 price target.

According to Zacks, the average brokerage recommendation for Celgene is "moderate buy."

Celgene on Oct. 24 was rated 7 out of 10 on StockScouter.

Apple Computer

The Cupertino, Calif., company is a personal computer pioneer and an innovator in the digital music business via its iPod music player and its iTunes music store.

Apple is among leaders in the ongoing digitization of music, photos and video via its software for managing, editing and sharing entertainment content.

The iPod's success is prompting some users to migrate to Apple's Mac platform. The company has moved to accelerate the process by introducing software that gives Mac users the option of running Microsoft's (MSFT, news, msgs) Windows XP operating system and all the programs that work with it.

Apple still holds just a small segment of the worldwide PC market, but its third-quarter PC shipments jumped 30% from the year-ago period. Overall personal computer shipments fell slightly during the quarter, according to research firms Gartner and IDC.

The company this year shifted its entire line of computers to microprocessors made by Intel (INTC, news, msgs), a move that enabled the company to make faster machines that run at cooler temperatures -- a crucial factor in the notebook computer market, The Wall Street Journal reported.

Strong sales of iPods and Macintosh computers helped Apple post a 27% increase in its fiscal-fourth-quarter profit. But Apple emphasized that its financial results were preliminary and might be significantly adjusted because of a likely restatement of past financial results related to backdated options.

Apple's fourth-quarter results helped allay concerns about weaker sales of the iPod, which dominates the market for MP3 players. The company sold 8.7 million of the devices in the quarter, for $1.56 billion in revenue, up from 6.5 million iPods and $1.21 billion in revenue a year earlier.

Apple on Aug. 30 said Google (GOOG, news, msgs) Chief Executive Eric Schmidt has been elected to Apple's board. Naming Schmidt to its board could prompt further alliances between the two companies.

According to Zacks, the average brokerage recommendation for Apple Computer is "moderate buy."

Apple Computer on Oct. 24 was rated 4 out of 10 on StockScouter