Top picks 2012: Cubist Pharmaceuticals

We have been recommending the stock since 1999, but this will be the first time that we have made Cubist Pharmaceuticals (CBST) one of "top picks" for the coming year.

The company's early focus was on the development of �next-generation� antibiotics to treat the "super bugs" that have become resistant to traditional therapies, and its lead product in this category, Cubicin, has been approved and on the market for several years now.

As the company's revenues have grown, management has taken the opportunity to expand into other "niche" areas as well, and the company's mission is now to develop and commercialize products that address a variety of unmet needs in the acute care environment (primarily in the area of antibiotics).
In addition to a fairly advanced pipeline of new antibiotics, the company also has a number of agreements in place with other pharmaceutical companies.

This allows the company to both co-promote certain antibiotics sold by those companies as well as to develop new compounds based on the technology libraries of other companies and research institutes. �

Along with a solid pipeline and strong revenue stream on the fundamental side, the fact that the stock has shown some of the best relative strength versus both other stocks in the biotech sector and the market as a whole over virtually any time period you choose to look.

And while the stock has tried our patience at times over the past 12 years, its current relative strength suggests a very strong reason to be bullish.

Indeed, it appears to once again be gearing up for one of those runs that has the potential to slowly but surely result in another doubling or tripling of our money before it settles into a new trading range at higher levels.

While Cubist�s current market cap makes it difficult to tell what sort of premium shareholders might receive in a buyout offer, we believe it is worth noting that, on more than one occasion over the past 12-18 months, there has been �intriguing� action in the company�s call options.

It is quite possible that 2012 will be the year that a large pharmaceutical company finally makes a public offer for the company.

Though please note that one should never buy a stock in hopes of that sort of outcome as their sole reason for owning the stock! Meanwhile, we consider CBST a buy under $40 and a very strong buy under $36.