3 Stock Picks: SNY, OSK, BEAT

At least one segment of the battered U.S. vehicle-making industry got a massive boost Wednesday when heavy truck maker Oshkosh (OSK) won a $1.06 billion defense contract for armored trucks, driving shares up 25% in midday Wednesday trading.

Under the contract, Oshkosh will make MRAP All Terrain Vehicles (M-ATV) that are reinforced against explosions from mines and roadside bombs, like the ones commonly used against American troops fighting in Iraq and Afghanistan. Shares of competitor Force Protection (FRPT), which previously held the contract, sank 35% on the news.

In a prepared statement, Oshkosh CEO Robert Bohn said the company would prioritize production of the 2,244 vehicles called for in the contract, due to an urgent need for the vehicles in combat.

BMO Capital Markets analyst Thomas Brinkmann said the government wants 500 to 1,000 trucks a month once full production begins. That's scheduled to take 60 to 90 days. He said the Oshkosh's profit margins aren't known, but it could add 65 cents to 90 cents in earnings per share over the life of the contract and should represent about 60% of the company's revenues. But, he says, there are limits to the good news.

"Although we believe this contact is a significant win for Oshkosh, it is likely to be immediately reflected in the share price, and we are cautious of significant upside beyond the impact of the contract win," he wrote Wednesday.

Sterne Agee analyst Ben Elias disagreed. "Oshkosh's selection implies that it will receive follow up orders to meet the current expected fleet demand of 5,244 vehicles," he wrote, upgrading the stock to Buy from Hold in a Wednesday report.

Bottom Line: Hold
With the stock skyrocketing by close to 25%, the initial upside from this contract may already be realized. Investors should pay close attention to Oshkosh's ability to ramp up to full production, as well as the level of U.S. troops that are engaged in combat areas, a number that is constantly shifting.

American depositary shares of French pharmaceutical giant Sanofi-Aventis (SNY) began rebounding Wednesday after the Food and Drug Administration backed the company's rebuttal of reports that said its insulin increases the risk of cancer. Shares were up 4% midday.

Sanofi shares dropped sharply Friday after several scientific papers linked Lantus, the brand of insulin made by the Paris-headquartered company, to a higher risk of cancer.

The company refuted the conclusions immediately. "The results of these data clearly show that no definitive conclusions can be drawn regarding a possible causal relationship between Lantus (insulin glargine [rDNA] injection) use and the occurrence of malignancies, as the authors of the study point out," the company said in a press release Friday.

By Wednesday, the U.S. Food and Drug Administration had also weighed in, warning diabetic patients to continue to take their insulin, and questioning the methodology used by the critical researchers.

"The duration of patient follow-up in all four studies was shorter than what is generally considered necessary to evaluate for cancer risk from drug exposure," the agency said. "Further, inconsistencies in findings within and across individual studies raise concerns as to whether an association between the use of insulin glargine and cancer truly exists."

Jefferies & Co. analyst Jeffrey Holford said Monday that Lantus is expected to account for 16% of Sanofi's sales by 2013. He also said the company had been fairly valued before the controversy weighed on the company's shares.

The insulin-derived shock to the stock presents a buying opportunity, Natixis Securities analyst Philippe Lanone wrote after the market closed Tuesday. He called Lantus' safety profile "impeccable" and said that the EMEA, the European pharmaceutical regulator, had also called the studies inconsistent.

"Even in the theoretical event, fast receding today, that a minimal association is found between Lantus and cancer, resulting in mentions being including in the labeling, or even restrictions in use" the stock's value would not suffer, he said.

Bottom Line: Buy
Despite today's gains, there still may be some upside for a stock that has been bounced around in the rumor mill.

Shares of medical device maker CardioNet (BEAT), a maker of wireless heart-monitoring devices, cut its full year earnings forecasts by more than half, sending shares plunging 40% in midday trading Wednesday.

The Conshohocken, Pa.-based company said it now expects to earn 30 to 35 cents a share, on revenue of $156 million to $160 million. Its earlier guidance forecast earnings of 69 cents to 73 cents a share and revenue between $170 million and $175 million.

"The revenue guidance is based on lower than anticipated commercial reimbursement rates," the company said Wednesday. "Volume growth continues to be significant, but is expected to be somewhat lower than the company had anticipated."

Thomas Weisel Partners analyst Steven Halper said in a note published late Tuesday that the news wasn't surprising given the aggressive guidance the company had previously given for 2010 and 2011.

"In our view, BEAT’s expectations regarding its sales ramp were simply too high. While we recognize BEAT’s growth potential, the company is clearly experiencing some growing pains, which may persist for some time, in our opinion," he wrote. "At this juncture it is difficult to find the silver lining for BEAT shares."

CardioNet CEO Randy Thurman said in a conference call that the company's products remain unique, particularly those that monitor arrhythmia, or irregular heartbeats, in its MCOT product line.

"While revenue is somewhat lower than planned, earnings will also reflect our investments for long-term growth and the anticipated lower commercial reimbursements rates," Thurman said. "We believe the dynamics of robust growth in a highly cost-conscious healthcare reform market will continue long-term."

Roth Capital Partners analyst Matt Dolan took a middling view, cutting the stock to Hold from Buy Wednesday. "In our opinion, our underlying thesis for BEAT holds, as we feel that CardioNet's MCOT technology remains differentiated and serves a significant and underpenetrated clinical need," he wrote in a research report.

Bottom Line: Hold
Growing pains and an uneven outlook for both the company and health care reform make this less a buying opportunity than a chance to exercise investment discipline through tough times.