Solid performer...

Cardinal Health is one of a handful of restructuring candidates in the fund's portfolio. Growth has slowed in its branded and generic drug-distribution business, but the industry has consolidated, with only two other major players, AmerisourceBergen (ABC) and McKesson (MCK). Cardinal has restructured the drug operations, which are improving. "We think the drug-distribution earnings are stabilizing in the next six months, and will begin to grow again. The other half of the business, medical products, has been growing and will continue" to do so at double-digits. Cardinal Health recently said it would split its drug-distribution and medical-products units. "It's undervalued, and the two parts are worth more than the whole," says DeGulis. Sound Shore has a mid-60s target price on the stock, recently near 44.

You can see MedcoHealth (MHS), Cardinal Health (CAH) and Quest Diagnostics (DGX) rallying, another cohort that's struggling to put in a recession bottom.

Believe in company growth

TP $74.00

17%

Citigroup downgraded three drug wholesalers -- ABC, CAH and MCK --to Hold. Higher copayments may cause the consumer to use fewer drugs in an economic downturn. Prefer PBM's and Managed Care stocks at current levels.

Broker recommendation

Credit Suisse said it is upgrading Cardinal Health (CAH) to Outperform from Neutral based on valuation. Sees favorable risk/reward for the stock. Raised target price to $77 from $74.

Cardinal Health (CAH) was upgraded from Neutral to Buy, Merrill Lynch said. $81 price target. Stock is trading in-line with its growth rate, which places valuation at 5-year lows. Earnings growth should re-accelerate in 2008.

Two bear indicators here: 1) look at the 5 year chart -- from 70 down to 40 and back to 70. This is the "treadmill to nowhere". 2) look at the tiny, microscopic dividend. Health care is 14% of the total U.S. economy. Surely a company that is kicking ass and taking names in a prime sector can do better than this.

growth