“Microsoft of Biotech”

By Travis Johnson, Stock Gumshoe, June 15, 2008

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.

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