First Quarter Performance

This was an odd opening to the year. Through the first two months of the quarter, I was down a bit relative to the S&P 500 and the Nasdaq. March has been a real lion for me, though, with stocks like First Cash (FCFS), Sauer-Danfoss (SHS), ISTA (ISTA), and TomoTherapy (TOMO) all really coming through for me in a big way.

First quarter 2011 -
Portfolio A : +12.6%
Portfolio B: +5.4%
Combined portfolios: +10.1%

S&P 500: +5.4%
Nasdaq: +4.8%
Russell 3000: +5.9%

Disclosure - I own shares of First Cash Financial, Sauer-Danfoss, ISTA Pharmaceuticals, and TomoTherapy

Seeking Alpha: Accuray Acquisition Undervalues TomoTherapy

Normally I'm thrilled to see one of my portfolio companies get bought, particularly when that was at least part of the initial purchase thesis. And yet, I cannot whole-heartedly celebrate Monday morning's news that Accuray (ARAY) is acquiring TomoTherapy (TOMO) for $4.80 in cash and stock.

Oh true, I am going to show a profit on this deal. Assuming that the $4.80 price holds up (part of the deal includes Accuray stock), that will be a 32% return for me in just 10 days of TOMO ownership. That is certainly nothing to complain about, but I am going to complain anyway.

Please read the full piece at Seeking Alpha:
http://seekingalpha.com/article/256773-accuray-acquisition-undervalues-tomotherapy?source=mc_all

Busy Days

Been busy adjusting the portfolios.

SOLD: PRS, YSI, JNJ
BOUGHT: BMTI, ISTA, LABL, MTNOY, RHHBY, SHS, TOMO

Now I own quite a few more individual positions than I'd normally like to ... but that's what happens when you don't want to sell much of what you already own. I'll adjust the Portfolio page soon to reflect this.

Late, But Not Too Late, For Healthcare

There's nothing quite as annoying as being basically right about something and making no money from it. I was pounding the drum for most of 2010 that healthcare was too cheap and that it was a good time to buy some undervalued companies.

Sure enough, stocks like Hologic (Nasdaq: HOLX), Varian (NYSE: VAR), Accuray (Nasdaq: ARAY), Bruker (Nasdaq: BRKR), Cepheid (Nasdaq: CPHD), and Volcano (Nasdaq: VOLC) have all done quite well. And how many of these did I buy? Oh yeah, that's right … none. I kept my shares in Johnson & Johnson (NYSE: JNJ) and added some Alnylam (Nasdaq: ALNY), but didn't add any of the other names I said I liked.

Lucky for me, though, it may not be too late. Looking around the sector, I'm still seeing some interesting valuations on names I like. There are not as many 30%+ undervalued stocks as six months ago, but still a decent collection of ideas.

Here are some of the names I've been looking at lately and seriously considering:

BioMimetic Therapeutics (Nasdaq: BMTI) – I absolutely love this company's product for treating non-union fractures, and I think the overall technology platform as a lot of promise in orthopedics and sports medicine. Moreover, orthobiologics has been a Holy Grail for years and only Medtronic (NYSE: MDT) has really gotten anywhere with it. If approved, BMTI could have a great market opportunity in front of it – though it would more likely get a buyout bid from a larger company like JNJ or Stryker (NYSE: SYK) that needs the growth and the product niche.

Unfortunately, BMTI is offering new technology and I'm scared to death of what the FDA is going to do with this. There is a tiny risk of cancer with these growth-stimulating products and even though BMTI appears to be safer than already-approved products, does anybody want to bet on the FDA taking an enlightened view of this? After all, it seems like the FDA has the attitude that any risk outweighs virtually any benefit. Still, with a panel meeting on May 12 the picture will clear up considerably. I'd like to own this one, but there's a better than fair chance the FDA will torpedo this product.

Covidien (NYSE: COV) – Nobody is more surprised that I like this stock than me. Covidien has long been a boring, not especially well-run company. But it seems like there's a new day at Covidien, and a host of deals done in 2010 should start paying real benefits and giving the company a shot at some decent growth. Covidien is what JNJ might be if management at JNJ wakes the hell up (and I never thought I'd be suggesting that JNJ needs to emulate Covidien). If Covidien can grow the top line at 5% and produce free cash flow margins in line with the industry norms, this is a $60 stock.

Palomar (Nasdaq: PMTI) and Solta (Nasdaq: SLTM) – Aesthetics will come back. These are the companies to own when it does. But judging by Allergan's (NYSE: AGN) recent guidance, the aesthetics market has not come roaring back yet.

Stryker – I've beaten this drum a lot. But I think this stock might actually be worth upwards of $80. Management seems hell-bent on finding ways to grow, and now has clearly opened the door to expanding into markets beyond orthopedics and surgical equipment. I don't know what's next for this company, but it's one I still want to own.

TomoTherapy (Nasdaq: TOMO) – Risky, but really interesting. I need to do a separate write-up on this one to really do it justice.

Abbott Labs (NYSE: ABT), Roche (Nasdaq: RHHBY), and ISTA Pharmaceuticals (Nasdaq: ISTA) – This post is probably getting unbearably long already, but these are three pharmaceutical (mostly) names where I still see some real value. Abbott has suffered as investors worry about competition for Humira. It's a valid worry, but one I think the company can navigate. Roche … well, Roche continues to underwhelm, but I think there's promise in the pipeline, value in the diagnostics business, and a left-for-dead valuation in the shares. ISTA is one of the only pure-plays left in eye care and looks like a winner whether it gets a bid or stays independent.

So that's a quick rundown on what I'm seeing in the med-tech space, but I didn't even touch biotechnology or life sciences. That will have to wait for another day. In the meantime, I'm seriously considering adding one or more of these names to my own portfolio. It's still easier to hold names in materials and industrials, but good healthcare stocks can still outperform and eventually the markets will wake up to these names.

Disclosure: I own shares of Johnson & Johnson and Alnylam

Is GE About To Stir Up The Medical Arena?

With the worst of the credit crunch over and plenty of cheap candidates, General Electric (NYSE:GE) may be about to become more active with acquisitions. With some oblique comments from a senior executive, it would seem that this American conglomerate is once again about to leverage its considerable capital resources. Investors may want to consider the sorts of companies that GE may be looking at as potential targets.

Sticking to the Knitting
Although GE is a frequently-mentioned name in the guessing game of healthcare acquisitions, the company is actually rather focused and consistent with its healthcare business. GE is a significant presence in the imaging, diagnostics, life sciences and healthcare IT spaces. By and large, the company steers away from interventional products, so the likelihood that GE would buy a company like Stryker (NYSE:SYK) is quite low.

Cancer Therapy
Although GE is not active in interventional medicine, Varian (NYSE:VAR) might be a logical way for the company to make that transition. An argument could be made that Varian's radiation therapy systems would be a natural extension of GE's diagnostic imaging products. Along similar lines, TomoTherapy (Nasdaq:TOMO) or Accuray (Nasdaq:ARAY) could get some consideration, though TOMO may be too small and Accuray too novel.


The link below will take you to the full article:
http://stocks.investopedia.com/stock-analysis/2010/Is-GE-About-To-Stir-Up-The-Medical-Arena-GE-VAR-VOLC-MASI-BRKR-TMO-ISRG1019.aspx

Signs Of Life In Radiation Therapy

Nobody in the medical technology sector has exactly been doing handsprings over the past few years, as lower patient visit volumes, reimbursement pressure, regulatory changes and sharply lower capital spending have all conspired to keep this supposedly-safe sector mired in the muck. Worst off of all, though, have been those companies that depend upon big-ticket capital equipment sales. 

Radiation therapy is a classic healthcare capital equipment sub-sector. The machinery built to deliver radiotherapy for cancer patients is incredibly expensive; sometimes the most expensive equipment a hospital will consider in any given time period. Although it is far too early to say that the sector is out of the woods, there are certainly some signs of life in the sector and investors may want to bone up on some of the major names. 


For the full piece, please click below:
http://stocks.investopedia.com/stock-analysis/2010/Signs-Of-Life-In-Radiation-Therapy-VAR-TOMO-ARAY-SI-GE-PHG0903.aspx

Shopping Time In Medical Technology?

The following has been posted on Investopedia:
http://stocks.investopedia.com/stock-analysis/2010/Shopping-Time-In-Medical-Technology-MDT-VOLC-ZOLL-ABMD-THOR0506.aspx.

It is a little strange for me to see ATS Medical get a bid. We banked that company when I was just a junior analyst at Piper and the CEO/founder, Manny, was (and still is) a one-of-a-kind guy. ATSI has always been something of a sad lesson for me; sad in that it proves that the best technology/product doesn't always win and that the company with the better marketing is more likely to win. 

In any event, it's always fun to speculate on who may be next to go out in the space. I hope you enjoy the piece.  


Amidst the paper blizzard of earnings releases, a little deal in the med-tech world took place. Medical device giant Medtronic (NYSE:MDT) announced that it was buying small cardiology company ATS Medical (Nasdaq:ATSI) for about $370 million in cash and assumed debt. The deal will bring some quality heart valve technology to Medtronic and cash to long-suffering shareholders of ATS Medical.


Buy The TechnologyThe ATSI deal is a relatively minor one in the bigger scheme of things, but it does at least highlight one type of deal that could be increasingly attractive - tucking in a small company that has good technology, but has not been able to leverage it effectively. Following this mold, investors should look for companies that have acknowledged quality technology, but for whatever reasons have not been able to deliver the growth that investors want.

You can read the rest at Investopedia: http://stocks.investopedia.com/stock-analysis/2010/Shopping-Time-In-Medical-Technology-MDT-VOLC-ZOLL-ABMD-THOR0506.aspx.