Stock Gumshoe

Many of you saw this email last week, the latest in a long string of Mark Skousen’s attempts to predict breakout stock performance on earnings dates. His past history of this is spotty, and I’ve written a few times about earnings pops he has predicted — some good, some bad.

Alas, I didn’t get a chance to look into this particular one until it was too late — I read the email on Friday, which was the day after this “Microsoft of Biotech” released earnings and was expected to stun the world.

And wouldn’t you know it, the one I miss is the one that actually does perform more or less as Skousen predicted …

This “Microsoft of Biotech,” according to Skousen, is China Medical (CMED) — more of a medical device maker than a traditional biotech drug firm, but a long-time Skousen favorite, and one of the few stocks I’m aware of that he has really stuck by over the last couple years. I last wrote about them over a year ago when Skousen was touting them, that time in the mid-$20s.

I’m assuming that he means the Microsoft of 1992, by the way, not the Microsoft of 2002 that has been more or less dead money for six years.

It has been a bouncy year or so for CMED, though on balance a good one (unless you bought in January or February) — they dropped by about $20 on their last earnings announcement, so it took some guts to promote them before this one … the shares spiked as high as $57 or so back in the early part of the year, but fell on the last earnings and generally petered out thanks to indifference about China and growth stocks. Then came the better-than-expected earnings release on Thursday, and the shares boomed back up. Still only about $41, well off the highs, but a nice performance nonetheless.

I wouldn’t necessarily use this evidence of success to suggest that Skousen is going to be any better than 50/50 odds when predicting an earnings blowout, but he has at least been backing this company consistently during a very good year or two of stock market performance. So, credit where it’s due.

CMED is essentially a diagnostics and cancer-fighting medical device company, much of Skousen’s favor came because they treat cancer using targeted ultrasound therapy and seemed to have some success there, and they also provide some other medical devices. They trade at a much lower valuation than the more well-known big medical device maker from China, Mindray Medical (MR), probably largely because Mindray has a broader array of devices that are essentially competitive copies of standard medical machines used worldwide, and doesn’t have to rely on one therapy, the way CMED apparently does with ultrasound, to grow (MR is about 4X the size of CMED, and trades at about twice the PE valuation).

So … CMED is a nice company, it’s not expensive on current earnings, and compared to its peers it’s even cheap on trailing earnings … and the earnings report this week indicated that 2009 looks good for them, too. I’m in no position to verify the success of their machines, but they may have promise — I know a few Gumshoe readers have bought this one in the past, feel free to share if you’ve got an opinion.

“A young company, along with one of the world’s largest universities, has created a successful, non-invasive system for the treatment of nature’s deadliest disease.”

That’s how Mark Skousen opens his ad for his newsletter, Forecasts and Strategies. If you wan to see what the company is, you’ll have to sign up for a subscription …

or, just keep reading the Gumshoe.

This ad teases a Chinese company, of course, which is awfully popular among the newsletter publishing set of late. China is right up there with uranium as far as the giant piles of email I get are concerned (and if you mix in Chinese uranium needs, wooo, that’s a whole ‘nother pile of mail) … but I digress. This pick has nothing to do with uranium.

This has to do with a medical device — in Skousen’s words, “a new high-intensity ultrasound therapy for the treatment of liver, breast, kidney and bone cancer. (… expected to soon get FDA approval to treat several other forms, as well.)”

So what are we told about this company, aside from the fact that Skousen believes that their accomplishments are the “medical equivalent of putting a man on the moon?”

High intensity ultrasound is not a product unique to this company, but they have patents and apparently this one improves the patient’s experience — no burns, no need for anesthesia (I have no idea if other companies’ devices cause burns or require anesthesia, but I presume Skousen does).

In the words of the newsletter ad: “Years before the company went public, it began developing a new high-frequency technology for cancer treatment in collaboration with Beijing University Medical School. The company owns all the intellectual property rights, along with the related patents.”

The key clues to the teaser?

“Over 20,000 patients have already been treated using this cutting-edge technology.”

“success rate that tops 80%”

And to whet your appetite: “Hundreds, if not thousands, of shareholders are about to hit the jackpot, becoming millionaires… some of them many times over.”

Are you itching to order up that special report yet? Just FYI, it’s called: “Wall Street’s China Secret EXPOSED –- How to Profit From China’s Newest Medical Technology”

No? Not for a hundred bucks or more? OK, then, more clues:

This company recently came public, with the help of a premier investment bank, and trades in the U.S.

In case I didn’t mention: Skousen believes that you need to buy now because “Wall Street isn’t going to be able to keep its ‘China Secret’ quiet much longer.”

Especially with the Gumshoe on the case!

What else do we have to feed into the Thinkolator 4000?

Merrill Lynch, Smith Barney and Morgan Stanley specifically do NOT cover the company. Odd clue, but there you have it.

Net profits are up 400% in three years.

GE is or was a big owner, owning 15% at one point.

And the name of the Vice President of Business Development, with whom Skousen met, is Dr. Zhu.

Skousen believes this is a ten-bagger, and, again in his words, “I’m expecting this company to make a couple of important announcements soon that will drive these shares right into the stratosphere“

(I assume this is related to a later sentence, where he says that “there is well-founded speculation that the company will get FDA approval to treat patients in the U.S.”)

So, you’d like to know what the company name is? Me, too!

One more big clue: A Business Week article entitled, “A Cancer Treatment You Can’t Get Here,” which notes that, in Skousen’s words, “patients from all over the world are flying to China to receive new treatments with the best success rates at killing tumor cells.”

Skousen quotes further from the article, “China is a logical place to work because more than 2 million Chinese get cancer every year. Clinical trials are inexpensive, at about one-tenth the cost in the U.S. And the regulatory climate is favorable.”

And the final, very last clue? “The company also sells advanced in vitro diagnostic systems currently used to test for thyroid disorders, diabetes and reproductive disorders.”

So know the Thinkolator 4000 is just about full to bursting … this medical device firm, Wall Street’s big China Secret, is …

China Medical Technologies (CMED)

Of course, just to be sneaky, that Business Week article wasn’t about this company at all, but about medical tourism for gene therapy … unrelated, but I guess it does make the point that Chinese medical advancements are based in part on approving things much faster than the FDA. Whether that’s good or bad, I don’t know.

Dr. Charles Zhu appears to still be the VP of Business Development, at least as of the last conference call.

Some good bloggers have written about CMED, including Investor Trip and Cabeza Howe — I don’t know if they’re right, either, but they share some good info and perspective if you’re interested in this one. And despite that “secret” tease and the talk about those big investment banks being ignorant of this opportunity, Goldman Sachs and UBS, no pikers, do both cover the company (both give it “neutral”, last I saw).

The company appears pretty reasonably priced to me on a quick glance — whether you think of it as a Chinese investment or a medical device investment, the PE of 18 or so (trailing) is not bad. I don’t know to what extent they’re reliant on entry in the US market (most medical companies are heavily reliant on this, but most of them aren’t from countries with a billion people, either), or whether they’ve got skeletons in their closet (they lost their COO recently, I don’t know why) that have brought down this valuation, but I do know this is Skousen’s pick here — let us know if you’ve got more to share.