Why To Buy Express Scripts

LARRY MANO
PORTFOLIO MANAGER
SCHWAB HEALTH CARE FUND (SWHFX)

COMPANY: Express Scripts
TICKER: ESRX (Nasdaq)
PRICE: $88.74 (as of 4 p.m. yesterday)
52-WEEK RANGE: $41.05-$95.00
MARKET CAPITALIZATION: $12.99 billion

Larry Mano is a portfolio manager at the Schwab Health Care Fund (SWHFX) with more than $450 million under management. Express Scripts is a pharmaceutical benefit services provider. Mr. Mano spoke to David Dalley of The New York Sun about why ESRX is one of his top buys.

What does Express Scripts do?

They provide pharmaceutical benefit management services including mail-order pharmaceuticals to the health care industry. They also have a retail drug card program and things of that nature.

What are the fundamentals like?

This stock has shown very strong cash-flow generation. It has consistently improved each year over the past few years,which to us is a very positive sign.

What about momentum?

In terms of analysts' recommendations, the stock has had a lot of upward revisions lately. There are about 20 main analysts following the stock and going forward they have a very positive outlook. In terms of price, the stock has performed very well relative to the market. Another positive is that the amount of investors who are shorting the stock has gone down, which is a bullish sign.

And price?

Toward the end of March 2004 the stock was trading at about $45. It's now at about $90. It has been one of our long-term holdings, and we've done very well on it so far.

Given the increase, is now still a good time to be buying?

We think so. We tend to be bearish toward the health care sector generally, but there are strong areas within that sector to be found.We've found that the health care providers industry [of which ESRX is a member] has been the best performing group. We still feel very strongly that ESRX has good po tential going forward.

What will drive future growth?

Pharmaceuticals have been on a downward swing, but health care providers have been constantly improving.The market for ESRX's services is increasing as the baby boomers age. Issues surrounding Medicare need to be ironed out, but a lot of what's going on in the industry - in terms of patents expiring and generic drug markets expanding, as well as consolidation between providers - bodes very well for this company going forward. It has been one of our best performers, and we think it will continue to perform well.