Denosumab and GAMMAGARD Will Unlock The Upside For Amgen and Baxter According To Large Cap Growth Stock Pickers At Kellogg Asset Management

• On 7:28 am EDT, Monday October 5, 2009

67 WALL STREET, New York - October 4, 2009 - The Wall Street Transcript has just published its TWST Large Cap Growth Report offering a timely review of the sector to serious investors and industry executives. This 43 page feature contains expert industry commentary through 6 in-depth interviews with top tier Portfolio Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Recovering Economy -- Domestic and Global Recovery -- Increasing Dividend -- Relative Opportunity and Opportunity Cost -- Downside Protection -- Bullish on Growth -- Valuations -- Effects of Healthcare Reform -- Development of New Products -- Innovation -- Growing Earnings -- Acquisitions -- Technologies -- Quality Control -- Equity Research Capabilities -- Sustainability and Predictability of Earnings Growth -- Source of Earnings -- Canadian Banking -- Divident Cuts -- Discretionary Stocks -- High Volatility -- Concentrated Portfolios -- Undervalued Stocks -- Demand for Steel -- Increasing Production -- Growth -- Coal Mining Operations -- Surge in Consumer Spending -- Increase in Viewership -- Unit Volume -- Foreign Income -- Tax Rate

Companies include: Schlumberger (SLB); ConocoPhillips (COP); Emerson Electric (EMR); Morgan Stanley (MS); Qualcomm (QCOM); Genzyme (GENZ); Colgate-Palmolive (CL); National Oilwell Varco (NOV); Myriad Genetics (MYGN); Nuance Communications (NUAN); Apple (AAPL); BHP Billiton (BHP); Changyou (CYOU); EMC (EMC); Intel (INTC); Dell (DELL); Wal-Mart (WMT); Gilead Sciences (GILD); Express Scripts (ESRX); Visa (V); Ross Stores (ROST); Amazon (AMZN); Monsanto (MON); Google (GOOG); Priceline (PCLN); United States Steel (X); Las Vegas Sands (LVS); INVESCO (IVZ); Noble (NBL); Cameron International (CAM); Peabody Energy (BTU); Medtronic (MDT); AutoZone (AZO); Sysco (SYY); The Gap (GPS); Lowes (LOW); CVS Caremark (CVS); Amgen (AMGN); Baxter International (BAX); Discovery Communications (DISCA); Time Warner (TWX); JCPenney (JCP); Kohls (KSS); Guess? (GES)

In the following brief excerpt from just one of the 6 interviews in the 43 page report, 2 Large Cap Growth asset managers from Kellogg Asset Management discuss the outlook for their top picks.

MARK P. HILGENDORF is Senior Vice President and Investment Officer of Kellogg Asset Management, LLC. He joined Associated Wealth Management, LLC, in 1995 and has over 19 years of investment management experience. Mr. Hilgendorf is a Senior Portfolio Manager and Team Leader, and is a co-manager of the Associated Common Stock Fund. He has earned the designation of Chartered Financial Analyst. He received a Bachelor of Business Administration degree in Finance and a Master of Science degree in Finance from the University of Wisconsin-Madison. During his academic career at the University of Wisconsin Graduate School of Business, he was accepted into the Applied Securities Analysis Program, where he received focused training in investment research and portfolio management. He is a member of the Association for Investment Management and Research and the Milwaukee Investment Analysts Society

MARK D. TUMPACH is the Vice President and Investment Officer of Kellogg Asset Management, LLC. He joined Associated Wealth Management in January 2002, and is currently a co-manager on the Associated Common Stock Fund and an equity analyst. He received a Bachelor of Science degree in Economics from the University of Wisconsin-Green Bay, and a Master of Science degree in Finance from the University of Wisconsin -Madison. During his academic career at the University of Wisconsin Graduate School of Business, he was accepted into the Applied Securities Analysis Program (ASAP), where he received focused training on investment research and portfolio management. During his career in the ASAP program, Mr. Tumpach was a co-manager of a large cap equity portfolio. He has earned the Chartered Financial Analyst designation and is a member of the Association for Investment Management and Research and the Milwaukee Investment Analysts Society.

TWST: What is the actual stock-picking process and how do you identify potential holdings? What criteria do you look for?

Mr. Tumpach: As Mark Hilgendorf alluded to in speaking to our investment philosophy our stock picking process revolves around finding companies that have exhibited positive earnings surprise. The philosophy being that the companies who have beaten to the upside will be the ones that positively surprise going forward. Therefore, our success comes down to our internal research staff knowing their companies in their respective sectors inside and out. That usually entails our analysts talking with company management teams and sell-side analysts to try and figure out what is really baked into guidance and consensus earnings forecasts. The next step would be to then compare that to our own forecasts and compare the two. Just as an example, let's talk about Amgen (AMGN) in the healthcare space. Healthcare as a whole has lagged year-to-date largely because of the political risk of healthcare reform. Amgen is a name we were buying earlier in the year when it was trading at 10 times earnings; so it was trading along with slower growing, large pharmaceutical manufacturers rather than a typical biotech name. But Amgen has an interesting pipeline, most notably their osteoporosis drug, denosumab. Upon denosumab's launch Amgen will experience a whole new growth cycle, and thus deserves a higher trading multiple. What the market doesn't appear to be giving them credit for is that not only will denosumab be used to treat osteoporosis, but also has the potential to be used in the oncology area. As tumor cells enter the human bone it leads to bone breakdown. As the bone breaks down it promotes further cancer growth. Thus, the goal with denosumab is to help stop the spread of bone cancer through the suppression of bone deterioration. As more Phase III data becomes available the market should begin to price in this added revenue potential.The stock currently trades at roughly 12 times next year's expected earnings and for a company that's going to see a renewed growth phase, we think the multiple should be much higher.

TWST: What about other opportunities that you've found?

Mr. Tumpach: Another name we really like in the healthcare space is Baxter (BAX). Most investors are focused on Baxter's bioscience segment, which makes up roughly 70% of profits. The bioscience segment manufactures plasma-based, recombinants and antibody therapies to treat hemophilia as well as to treat immune deficiencies, burns and shock, and wound sealing. They also make vaccines for such things as the flu, including the H1N1 vaccine. The stock's underperformed largely for three reasons. One, fear of the pricing cycle in the plasma area. Recently there has been an increase in supply, which has led to fear of a supply/demand imbalance. We think that fear is unwarranted. The increased supply is simply just getting back to normalized levels after being very tight in supply last year. Demand remains very strong as well, giving us further confidence. It is important to note, consolidation in the industry over the last ten years has led to greater visibility in the industry so that the players can better align supply with demand relative to the past. And pricing itself has very little impact on the earnings power of the company. For example, a 1% price change only affects Baxter's EPS by $0.02-$0.03.The second investor fear is healthcare reform, which has not only weighed down the entire healthcare sector, but may disproportionally affect the device names. Part of the healthcare reform proposal is the use of excise taxes. Device manufacturers are being targeted with a disproportionate level of excise taxes relative to other healthcare industries.Finally, the President's tax reform plan is to raise taxes on foreign income of companies. Baxter, along with a lot of healthcare names, has among lowest tax rates out there because of its high mix of sales from outside the United States in countries with more favorable tax rates. Baxter's tax rate is less than 20%. However, the company's guidance assumes a 500 basis point increase in the tax rate over the next ten quarters already, so we don't really see any downside to expectations.Here's why we like the name. One, as I mentioned, demand remains very strong for the plasma and recombinant products. There's not really any impact from a macroeconomic standpoint on demand so we think it's a very defensive name. Operating margin should expand over the next five years from the growth of plasma-based products outpacing the rest of the company's product portfolio because the bioscience segment carries higher margins. The pipeline is also largely ignored by investors. The number of meaningful drugs in the pipeline is roughly twice that of a year ago. They have a long-acting recombinant factor VIII product that's intended to prevent rather than simply treat hemophilia. Baxter is also studying the use of their existing GAMMAGARD antibody product for new indications, such as Alzheimer's treatment and neurological use, as well as a subcutaneous version that would provide a convenience benefit verses the current IV-based product. A subcutaneous version could command a 30% premium because of the convenience factor. Baxter will also be one of the few manufacturers of the H1N1 vaccine, which should give them some upside into next year. Valuation is at 13 times next year's earnings and it typically trades in the upper teens.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 43 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

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