Taro Pharmaceutical stood out as a noteworthy exception during a turbulent market phase, showing resilience while the S&P 500 faltered into a bear market. This strength was largely attributed to its portfolio of generic drugs, which appealed to consumers looking to save on healthcare costs during economic downturns. Additionally, the company’s impressive earnings growth played a significant role in maintaining investor confidence.
Hailing from Israel, Taro specialized primarily in dermatological pharmaceuticals, with a substantial investment of 14% of its sales earmarked for research and development. This commitment to innovation helped bolster its competitive edge. In the three years leading up to 2000, Taro achieved a remarkable annual earnings growth rate of around 100%, showcasing its ability to thrive even in challenging economic climates.
An early parallel can be drawn with Lorillard, known for its Kent cigarettes during the 1957 bear market. Like Taro, Lorillard innovated at a critical time, introducing a filtered cigarette designed to alleviate health concerns associated with smoking, which in turn led to increased sales.
In October 2000, Taro broke out of a notable cup-with-handle formation, maintaining a steady trajectory by consistently staying above its 10-week moving average. This stability not only provided a solid foundation for the stock but also created multiple opportunities for investors to incrementally build their positions whenever the stock rebounded from that moving average.
Exceptional stocks typically allow for recurring entry points for investors who remain vigilant and patient, enhancing the potential for long-term gains.
It’s worth noting that Taro was subsequently acquired by India-based Sun Pharma in 2024 and that Lorillard has become part of British American Tobacco (BAT), illustrating the ever-evolving landscape of the pharmaceutical and tobacco industries.
Investors looking for standout opportunities should take lessons from Taro’s journey, particularly in understanding market dynamics and identifying companies that can flourish even amid adversity.
