“Jim Conway Developed a Better Solution”

By Travis Johnson, Stock Gumshoe, March 26, 2007

I’ve gotten this email myself a few times, and had it forwarded by a few readers — it tells a David and Goliath story about a medical device manufacturer, and it’s trying to sell us on a subscription to Navellier’s Quantum Growth service.

Here’s the basics:

This inventor came up with a better catheter, one that prevented infection, and got it approved by the FDA way back in 1998.

It was clearly a better mousetrap, but the big companies conspired to keep it out of hospitals and they couldn’t get access to the big hospital market — as you can imagine, the straight-to-consumer market for catheters is somewhat limited.

So this inventor, Jim Conway, hired a lawyer (one of many who spearheaded Vioxx lawsuits against Merck).

Eight years later, the big distributors and pharma companies capitulated and paid him $60 million and gave him access to 1,500 hospital accounts.

Which means the company is now profitable … and in Navellier’s words:

“What was recently a $5 stock a year ago is, according to my research, on its way to being a $50 stock in 2007.” (it’s just over $20 at the moment, FYI)

Other tips to confirm the stock, which you may have guessed by now:

It’s up 82% on the year.

It jumped 51% after their last earnings release.

So we put that pile of data and teasers into the great big Stock Gumshoe thinkifying calculatometer … and we discover that …

… this company is …

Rochester Medical (ROCM)

A quick look at the chart will confirm that the stock price movement data matches the tease — and the easy answers are provided by looking at the major holders of the stock, many of whom are in the Conway family. If you want to read a bit more about this one, there’s a nice Forbes article from a couple weeks ago that goes into some more detail on the story.

Is it a good investment? Beats me. The company is very cheap if you look at the trailing PE, though I expect a big part of that is probably the lawsuit money. If they’ve really invented a better catheter and have the capacity to get it out to all those hospitals they now have access to, this might just be a great Peter Lynch investment — buy something that no one really wants to think about, and that is as far from glamorous as you can get. I know I want to read as little as i can about catheters, frankly, it makes me squirm in my seat a bit too much, so I don’t expect I’ll be buying into this one.

Whether or not it’s for you is, of course, something only you can decide … now that the Stock Gumshoe has told you where to look. Best of luck.

A wee update for you on May 3: Rochester Medical got clobbered today and yesterday on disappointing results, so the shares are down dramatically (it had climbed up to $30 three days ago, now it’s at $17). That backward-looking PE of 6 now looks real enticing, though it might pay to notice that the forward PE at this quarter’s run rate would be right around 50 (I don’t think any analysts publish estimates). Just FYI … If you thought it was a bargain at about $22 when I first sleuthed it out, then perhaps it’s more of a bargain now, albeit one that has quite a bit further to go to reach Navellier’s $50 target.

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April 8, 2007 8:10 pm

I was recently looking at this one… I knew what it was halfway into the first sentance… I definately think it’s a good buy.
It’s got a PEG of .21 and earnings yield of 15.23%, as if you can get much lower then that. It’s earnings have been climbing, it’s recently been in the IBD 200…

The IBD overall rating is currently a 95, (98 EPS rating and 99 RS rating).

I checked this on vectorvest.com, a rating system, and it’s got a 1.62 Value rating, a 1.18 safty rating, and a 1.7 timing rating and an overall VST rating of 1.52…
Basically it’s ranked on a scale of 0 to 2.0 and anything above 1.25 is considered “excellent”… You will be very hard pressed to find ratings of 1.5 or higher, and the highest I’ve found is 1.6 (ROCM had 1.6 about a week ago, PRXI did as well, and SPAR currently has a 1.6 rating)
another rating by vectorvest is the “confort index” which is basically a safty rating based on past history only. A stock’s history risk tolerance is usually a pretty good indicator of saftey, where as history of a stocks growth is not. ROCM’s confort index rating is a 1.85, which makes the average 1.18 much more comforting…

After some closer inspection of the SEC filings and listening to any press conferences, this one could very easily be a screaming buy…

p.s. thanks for all the great info… Even if I don’t buy a single stock because of this site, it’s very interesting to look at, and is helping me learn a few things about what people tend to “hype up” about a stock, vs. what actually seems to work.

If you could somehow post a daily tracker of those “sluethed” stocks or something it would be great… just a suggestion


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