THINK BACK TO YOUR

last trip to the doctor's office. Remember the smartly dressed "patient" with a carry-on size suitcase in the waiting room? The one who grabbed a few minutes of your doctor's time just before you went in? That's a drug sales rep. Their number in the U.S. has exploded to more than 100,000 in recent years, while the number of doctors has remained steady at 800,000, about 20% of which write nearly all prescriptions.

The business of pitching brand-name medicines to doctors has become fiercely competitive. Big drug companies need sales tools that give their reps an edge. Enter Dendrite International. It makes so-called sales-force automation, or SFA, software systems, which help sales managers track and maximize rep productivity, while helping reps know more about their customers and prospects.

Dendrite counts the world's largest pharmaceutical companies Pfizer, Bristol-Myers Squibb, Merck and so on as customers. Its sales, profits and share price have each doubled over three years. But today we're looking at Dendrite, not because of its rapid ascent, but rather due to its recent stumble. The stock's 30%-or-so decline (through Monday) since November has earned Dendrite a spot on our Contrarian screen.

Contrarian investing doesn't refer to the practice of simply buying stocks that are moving in the wrong direction. That would make for a lousy strategy, since research shows that companies are more likely than not to exhibit share-price momentum in the direction they're already moving. Contrarian investing is instead an aggressive form of value investing. Be the first one to embrace a company whose share price has fallen further than its prospects warrant, and the payoff can be significant in the form of a short-term bounce and longer-term recovery.

The 10 companies that survived a recent Contrarian screen on Dec. 19 are up a quick 4%, vs. a 2% dip for the broad market. Our screen looks for stocks with lousy price performance over the past 13 weeks, but also seeks modest valuations and manageable debt levels. It also boots companies with average analyst recommendations of Buy or Strong Buy, since nothing screws up a contrarian search like residual popularity waiting to be lost.

Use our stock screener and Contrarian recipe anytime to run our search for yourself. It recently produced eight companies, including Dendrite.

The past two years have marked a strategic shift for the Bedminster, N.J., company. Through a series of acquisitions it has built a marketing business to complement its sales side. "Marketing is no longer about simply using a mass approach to prescribers," explains David Coman, vice president of global marketing at Dendrite. "There are certain behaviors you can track by physician to allow you to better market to them. Some doctors, for example, are early adopters of new medicines. If we can understand them, we can target them for new product launches. Or we can target them if we're trying to defend a brand."

Marketing services now bring in a quarter of total sales, and allow for what Coman calls a confluence of sales and marketing. Drug companies can use Dendrite sales systems for their reps, while hiring the company to perform targeted mailings and sample distributions even phone campaigns conducted by doctors-turned-marketers who can speak prescribers' language.

Dendrite shares began their recent plunge in November, after the company warned that fourth-quarter sales and earnings would disappoint. Sales, it said, will total $106 million to $108 million, less than the $119 million analysts were looking for, and adjusted earnings will be between break-even and six cents a share, vs. analysts' forecast of 28 cents a share. "While some important new sales contracts have been closed and its marketing solutions groups expect a strong quarter, several transactions previously expected for the fourth quarter will not close in the period or will close too late in the quarter to generate revenue," read the press release.

First Albany analyst Glenn Garmont promptly downgraded the stock to Sell from Buy, noting, "While we continue to believe that Dendrite has been presented with compelling growth opportunities globally, this has become a 'show-me' stock."

Contrarians may want to take this opportunity to grab Dendrite shares on the cheap. The stock climbed about 8% Tuesday on news Dendrite landed a three-year software and service contract with France's Sanofi-Aventis, the world's third-largest drug maker. But shares still fetch roughly the same price they did in 2003, despite sales and earnings that have climbed by more than a third since then. They go for about 20 times projected 2005 earnings, which are due to be reported on Feb. 8. The average price/earnings ratio for application software makers is 21, and Dendrite is projected to boost its earnings by 15% annually over the next five years, faster than the group's 12%. That gives the stock a price/earnings-to-growth, or PEG, ratio of 1.3, lower than peers' 1.8 and the broad market's 1.5, suggesting this drug marketer's shares could be due for a speedy recovery.