Cabot’s “$17 Stock to Turn $34” Medical Device Stock

Timothy Lutts' ad for Cabot Small Cap Confidential says: "This Medical Devices Company is About to Double Again" -- what is it?

By Travis Johnson, Stock Gumshoe, August 22, 2016

This ad caught the eye of several readers, and it’s a slight variation on an ad that I first solved for the Irregulars back in June — so I thought I’d give it a quick once-over and see if we’re still talking about the same stock. So, my dear Irregulars (those are our paid members, in case you’re wondering), this might not be all that new for you… let’s see.

Here’s the opening, which is a pretty strong pitch — and we should pause to give Timothy Lutts and his copywriters credit, because it’s a pitch based on the fundamentals of the stock. It’s not a made-up story about some revolutionary idea or technology that doesn’t exist yet:

“The medical devices company I’m about to name will soon be a $34 stock that you must snap up today for $17.

“The stock jumped 25% in the last 30 days and is set to jump again.

“The company specifically targets a niche market in cardiovascular disease where it has a monopoly-like market share.

“This is why the company has delivered four positive double-digit earnings surprises in a row … why seven analysts upped their earnings estimates in the last 30 days … and why its price has risen 132% over the past two years.”

Of course, they get a bit silly, too, comparing it to Tesla (TSLA) — but that’s pretty much in the ad template for them, they compare each growth stock to some former idea of there’s that has doubled and hint that their next idea is “like Tesla, only better” or “revolutionizing the medical industry like Monster revolutionized soft drinks” or “riding a wave of unstoppable growth like Amazon.”

So like most of their promoted profit analogies it sounds a bit strained, but here’s how they put it today:

“Just as Tesla’s battery breakthrough revolutionized the electric car industry, this small cap medical juggernaut is doing the same thing for the surgical treatment of cardio vascular diseases (CVD).”

That sounded very familiar, despite the fact that their ad implies that this is a fresh recommendation (they want you to get in before the stock goes up, which they say often happens soon after they pick a stock)… so then I checked a few of the other clues, and yes, this is indeed the same stock they were teasing on June 10. So here’s the rundown of those clues for those of you who missed the first article (some of this is taken from my June 10 Friday File, though I’ve done some updating).

“… the bulk of our company’s surgical profits will be paid for by the government—AND the shareholders will reap massive profits along the way.

– A huge percentage of the 77 million Americans who turn 65 over the next 18 years will ultimately require these kinds of heart-saving treatments, as heart disease is one of the leading age-related illnesses in America, and the fact that
– Medicare insurance will shell out billions to pay for them.”

OK, but that’s true of any medical device or pharmaceutical company — people don’t pay for these things out of pocket (if they did, the economics of our healthcare system would be dramatically different… with a lot more customer service and competition, and a lot less filling out of forms by both doctors and patients).

So how about some specific clues? He doesn’t give a lot, but this is what we have to feed to the Thinkolator…

“This small-cap company’s surgical technology solution offers less discomfort and quicker recovery than traditional methods….

“The company is clearly the leading provider in its sector not only with a 30-year history in the space but also a whopping 79% market share….

“Shareholder—friendly and expert management has already handed investors nearly 100% gains over the past two years and looks to repeat this performance every two years for the next decade or so—all thanks to its growth platform that targets 10% annual sales growth and 20% annual profit growth.”

This “secret” stock is actually showing more than a 100% gain over two years as of today, but that hint was accurate a few months ago when they wrote the ad. A little more, please?

“… it may also be the perfect takeover candidate, thanks to its $79 million in revenue, current 58% revenue growth and monopoly-like position in this growing field.”

And while we had a small bit of uncertainty last time around — this time we also get the “$17 stock” part of the hint, which is new, so we can tell you that the Thinkolator’s answer was (and is) almost certainly correct: This is LeMaitre Vascular (LMAT)… which, in some ways, is in a similar business to a couple of other “vascular” companies Cabot Small Cap Confidential recommended under their previous editor (ELGX in 2012 and CSII, which they then called their “stock of the decade”, in 2013 — both failed to hit their promoted mega-returns), LMAT is much more of a diversified “platform” growth company that’s trying to roll up lots of little niche businesses and “own” the vascular surgery space, particularly disposables and implanted tools, with a strong sales force and a variety of products.

Why is this the match? LeMaitre’s latest investor presentation (which has some good data, by the way, worth a look) includes the quote “We aspire to achieve 10% sales growth and 20% profit growth.” So that’s one check mark.

And they did have $79 million in revenue in 2015… though one little hiccup is that they didn’t have 58% revenue growth. They DID have 58% net income growth in the first quarter this year, so I suspect that’s either an intentional or accidental fudge from Laundon’s ad copywriter.

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The growth has been continuing — the trailing twelve months revenue number is now up to $82 million, and the last earnings report helped to bump the shares up from the $14 range to the $17 range… so the stock has gone up roughly 25% in the last month (depending on which exact dates you use). They beat earnings estimates in that quarter, and projected that this year’s sales would end up at over $88 million, so that’s 11% year over year revenue growth… and they also increased their income forecast for the year — so it was every growth investor̵