JJC:   I've got a great defensive play that's also a takeover target, coming right from the aisles of your local drugstore... and a stock you've probably never heard of, unless you're a watcher for almost three years of Mad Money...

And the stock is...

Chattem Inc. (CHTT).

This is a little $1.5 billion number.  Very small...  A stock that is 2 points off its 52-week high, because it's recession-proof.  It's as recession-resistant as they come!...

This is small, okay?  But it's got a wealth of products... products with strong brands that I think will make a great acquisition for almost any other consumer products business out there, particularly a European company that pays with very expensive euros to buy inexpensive dollars...

Now you might not recognize the company's name, but you probably know its brands...

Icy Hot, Gold Bond, Selsun Blue, Garlique, Pamprin... Bullfrog, and my personal favorite of the bunch - just because the ads are so ridiculous and embarrassing - Herpacin L!...

When we look at a company that sells over-the-counter healthcare products, toiletries, dietary supplements and the like... we measure their success by how many feet of aisle space they take up, okay, in a CVS or a Walgreens...

CHTT's products are scattered, but they take up a lot of shelf space, and that's what big pharma wants from Europe...   Now this may be a small company, but they take up a lot of space in the drugstore...

The company has a winning model, and it's created a winning stock.  CHTT has doubled since I last recommended it a long, long time ago, on April 7th of 2006.

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These are attractive brands for a small company, but Johnson & Johnson (JNJ) could (not) care less, right?...  And they had to sell brands to appease the regulators.  CHTT was there to pick them all up.

They've got a simple process for turning their junk brands around, and you can see how well it works just by looking at the stock's performance.

First, they boost advertising, because the company recognizes that it's all about brands, right?  Then they support the brands with a lot of ad spending...  Then CHTT likes to bring the production of many of its brands in-house, manufacturing the products themselves to boost the profit margins.

Finally, they take the brands they've supported, and extend the product lines to boost their sales and get more shelf space.  They've got nine planned brand expansions coming up in 2008. 

That's a model that's worked flawlessly, frankly.  I think it'll keep working.

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CHTT's last quarter reported in September.  It was a genuine blowout.  They reported 84 cents of earnings per share.  The Street was looking for a paltry 74 cents.  Sales were up 51.4% year over year.  You've got to love that revenue growth.  CHTT issued upside guidance for 2008.

The question with a stock like this is, how do you value it?  How do you value all these brands?...

Well, we got a great clue for that, back on September 10th, when Adams Respiratory, the makers of Mucinex, was bought by Reckett Binkeiser (?)...  They took out Adams at a 37% premium, valuing it at 4.97x sales, and 33.9x earnings.

Oh man, what would that make for CHTT?...

It would take this $75 stock, and it would go to $84... I think, actually much higher...

Certainly, anyone who wants to buy aisle space at CVS on the cheap, should be looking to buy CHTT as an easy way to expand and win the war for inches and, of course, feet in the drugstore.

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