“A Market Insider and Lifelong Friend Hands Me the Best Opportunity of 2009
“‘I can’t imagine a better stock to buy.'”
That’s how the newest ad launches for Porter Stansberry’s Inside Strategist, a newsletter that has churned through at least two editors in the last few years, but which is now apparently run by Porter and a newer guy named Braden Copeland. And this time, Porter’s actually signing the ad letter himself and making a pretty bold claim …
“This is the best play I’ve seen in the last 3 years. I told my readers to put 25% of their portfolio in this stock. That’s how sure I am.”
Well, if he’s that certain of this one … shouldn’t we at least figure out who it is?
The ad is all about a stock that he has targeted because an old friend of his is an executive at the company, and he says that his friend told him this:
“I don’t know why our stock is trading for less than $10… it’s crazy. I know what our sales will be. I know how well our products are doing. We’re doing great. I don’t know everything about investing. But, I can’t imagine a better stock to buy than ours.”
Now, if we take off the rose-colored glasses for a moment and think back to every conference call we’ve listened to, and every CEO interview on CNBC, we might note that yes, CEOs are often shocked at the low prices of their shares. But we’ll give him the benefit of the doubt here and see what we can learn …
Porter tells us that he has turned these kinds of tips and comments into profitable trades for his investors for years, and he reiterates the claims that he was an early predictor of the failures of Fannie and Freddie and GM (claims that seem accurate, as far as I can tell).
And he tells us that he’s “confident [his friend’s] stock will be my best play of 2009. I’m talking about a potential 200-300% … in just a few short months.”
All I can say is, thank God it’s not a few of those long months — who’s got that kind of time to wait?
Let me dig through the ad and pull out some clues for us …
“His company commands 50% of the $4 billion worldwide market for heart stents.
“And now, they’re introducing a new, one-of-a-kind stent technology that needs very little drugs to protect the stent, therefore making it safer and far more effective when implanted in patients.
“The final tests are being done on the stent before it’s ready to hit the market.”
OK, so stents are a pretty oligopolistic business — this might not be too difficult.
Other clues? There are some past charts he shares, with these basic claims:
The company purchased “an angioplasty technology where catheters reopen clogged arteries in lieu of surgery. Shares shot up 220% in just over a year.”
OK, and “the last time they released a proprietary stent technology to the market …. Shares soared 411% in three years.”
They “booked $5.6 billion in profits last year.”
John Paulson, the legendary investor who made gazillions from the credit collapse, owns “about $800 million worth” of this company.
So — that’s about it for the clues on this one (though he also talks up a second special report, “A quick double thanks to the ultimate gold insider” which is all about a John Doody gold pick and its mining permits in Greece… I wrote about this for a Doody teaser back in May, so you can read up on it here if you like).
But back to the point — what is this medical stock?
Boston Scientific (BSX)
John Paulson’s investment firm does own just under $800 million in BSX shares. They are one of the major stent companies.
And be careful about that assessment that they booked $5.6 billion in profit — they did, but it was gross profit, meaning just the revenues minus the cost of goods sold … operating expenses and one-time charges have eaten up all that “profit” and more over the last three years, and it’s only now that the company is again looking like it will record real profits going forward. This is a turnaround story, to be sure, with recovery in the stent business and integration of their big, messy and expensive acquisition of Guidant.
So is it a turnaround story that you want to bet on? Well, they have been able to keep sales growing thanks to solid recent performance from their drug-eluting stents and their implantable defibrillators — these are not optional items, and these kinds of life-saving surgeries and procedures can’t easily be postponed just because you’re afraid of losing your job or paying the coinsurance, so while these markets have had problems of their own they’re not necessarily economy-related problems.
The stent business has been a scary one for several years, with lawsuits and patents and all kinds of foofaraw that I haven’t looked into in detail, but it’s worth noting that it is, at least, a very competitive business. Of course, it’s a competitive oligopoly, so they’re probably not going to kill themselves trying to cut costs, but there is always a threat that the next innovation will come from one of their competitors or that side effects or technical problems will suddenly emerge for one of their products and drive sales to competitors. Boston Scientific has been hassled by the FDA for the way it handled product quality issues, and has been battered by the market — for the first half of this decade they could do no wrong, for the second half their stock has inexorably fallen further and further each year (to go along with those several years without profits, and with the big problems that hit both Guidant’s implantable products and the stent business more broadly). That said, plenty of analysts agree with Porter that the shares are cheap here — Morningstar thinks it’s trading at about 60% of fair value and that you should consider buying around $12 (it’s at about $11 now). The forward PE is about 15, which would be exciting for those who owned this E-less stock for years, and, thanks probably to some goodwill from the Guidant acquisition, it trades at a very cheap (for the sector) price/book ratio of only 1.3. As one might expect from a company that hasn’t shown a profit for a few years, they do not currently pay a dividend.
BSX also has a whole suite of options available, so if you really think Porter’s right about big moves coming in the next six months you could look at the February call options — you can buy in-the-money $10 strike options at about 1.85, which means you have some slight downside protection (the options are worth almost a dollar if you exercise them today), or, if you want a more leveraged bet for a smaller outlay and you really think the shares will double or triple in short order, you can buy way-out-of-the-money calls pretty cheap — the February $15 strikes (which require a move of about 40% in the stock to be profitable at expiration) would probably cost you about 25 cents … of course, you might lose it all if Porter or his friend are wrong, or if the huge stock performance takes longer than a “few short months.” There are all kinds of variations and possibilities, of course, both riskier and safer, those are just some options if you want to bet on Porter’s short-term prescience and on Boston Scientific’s quick resurgence as a growth stock.
As for Boston Scientific’s new stent that’s supposed to help drive the stock higher? I haven’t combed through their pipeline very carefully, and I probably wouldn’t recognize it if I saw it — they did just get FDA approval for a new version of their TAXUS stent, and I assume that they’ve probably gone through their development pipeline in recent conference calls, you can listen to the last one (just a week old now) by clicking here and registering. There are a lot of versions of these little stents, including those from BSX’s homegrown portfolio and the different stents they acquired from Guidant, so it would take a (much) stronger expert than I to understand the stent market and new products very thoroughly and tell you whether or not there’s a breakthrough in the wings — if there are some medical tech investors or cardiologists out there who want to share, feel free to illuminate us.
Insider buying? There hasn’t been much of late — John Paulson does own a big slug of shares and was buying more as of earlier this year (his funds own about 6% of the shares), and people certainly follow his portfolio closely, but actual company insiders have done a lot more selling than buying in the last several months … though to be fair, that’s swayed dramatically by a consistent selling program by co-founder John Abele, who has been selling shares for months but still owns 22 million shares of the company. A couple other executives and board members have bought small chunks of shares in the recent past, and many have exercised options.
And if there are any investors out there in Gumshoeland who’ve got opinions on Boston Scientific, or on other stent makers like Johnson & Johnson, or other medical device companies we should look at, well, by all means, share your thoughts with a comment below.
Finally, if any of you dear people have tried a subscription to the Inside Strategist newsletter from S&A, please click here to share your thoughts — worth it? Not worth it? The people want to know!
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.