KV.A – KV Pharmaceutical Class A

KV markets more than 130 generic drugs including cardiovascular and anti-inflammatory treatments.

With the Democrats in control and wanting to negotiate lower drug prices for the Medicare insurance program for the elderly and therefore cover more medicines with U.S. government subsidies could be a positive for KV Pharma. On the other hand there is still the pending lawsuit from last November over alleged improper stock options backdating. With a proper stop-loss in place, I believe the reward outweighs the risk.

According to analyst estimates, KV is expected to grow earnings at 48% next year to 1.48. That leaves it with a forward P/E of 17. Needles to say that when expected growth is nearly 3 times that of the P/E there is little question that valuation is attractive.

Technically, The stock has been trading below $25 for nearly 2 years. In the past 5 months the attacks of breaking above this level have become more frequent. The shares trade both above its 50 and 200 SMA.

I'm planning to start a position once the stock moves above $25, therefore putting in a stop-buy order.

ROST - Ross Stores Inc

Ross Stores operates two chains of off-price retail apparel and home accessories stores, which target men and women between the ages of 25 and 54, primarily in middle income households.

In 2004 and 2005, Ross suffered from poor reporting which led to high shipping costs, low product margins and too much differences of what is on the shelves and what a physical count turns up (shrink). Last year the company invested in new software and inventory systems which should help the bottom line.

In the most recent quarter revenues increased by 10% yoy and EPS increased by 21% yoy. Earnings are expected to increase 14% next year (vs. Industry avg of 11%) while the company sells at a P/E of just 17 on 2007 earnings of 1.90. On a Price-to-sales basis, Ross is undervalued by nearly a factor of 2 (0.83 to an industry average of 1.50) and also looks cheap on a Price to Free Cash Flow (TTM) comparison of 16x for ROST vs 28 for the industry.

Technically the stock broke through a 3 year resistance at 32 on January 12 and is now retesting the resistance / support level.

I'm looking to start a position at the $ 32 level and add more at $ 30 with a stop below the 200 MA.