WBB Securities Analyst Steve Brozak says one of the biotechnology stocks he is recommending is Cytori Therapeutics Inc. (USA) (CYTX). He says the company’s latest product, which he expects to be marketed in the near future, transcends biotechnology.
“Cytori’s device extracts stem cells from a patient’s fat, or adipose cells,” Brozak says. “Candidly, it is something where we see this as being the first practical application of stem cells in regenerative medicine that we think will hit the markets in short order.”
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Brozak says Cytori’s device is used to draw and process a patient’s stem cells, but also includes a biologic process because the cells are used on the same patient to solve a medical issue.
“They’re testing these cells right now for use in patients that have severe burns. As a matter of fact, Cytori was awarded a BARDA contract to research and develop their technologies in burns and wound healing,” Brozak says. “They’ve been used commercially overseas for breast reconstruction in women who have had breast surgery for oncology purposes. They’ve been used for closing and healing tough-to-treat wounds because these cells obviously lend themselves to adhere and promote healing on open tissue, and we think that’s an exciting area.”
Bob McNamara, CFO of LDR Holding Corp (LDRH), says that for the time being, the company is focused on growing its revenue. He says management has chosen not to be profitable at this point in order to invest in the company’s future.
“To address the growth perspective, both lumbar and cervical are growing at double-digit growth,” McNamara says. “We had over 20% growth over the last three quarters. Since going public, and certainly last year, lumbar grew 15% and cervical at 34%.”
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McNamara says management views its Mobi-C product as a unique opportunity for future growth. He says the product has a superiority claim that competitors don’t have.
“If you think about generally what it would take to be profitable, I would say, revenues of approximately $180 million to $200 million,” McNamara says. “And so if you consider our growth rate, you can calculate when we might be there, but right now, we are focusing on investing into topline growth.”
Senior Portfolio Manager Michael Simpson of Sentry Investments says though Sun Life Financial Inc. (USA) (SLF) had a challenged 2008, 2009 period, the company has improved operations and is looking toward growth in several areas.
“We think that they improved operations by getting out of some of the more problematic insurance products, the variable annuities,” Simpson said. “They’ve got a gem of an asset in the U.S. called MFS; they own 93% of it, and it keeps on producing very good results.”
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Simpson says Sun Life is planning to build out its Canadian wealth operations again, as well as increase its dividend payout.
“The CEO is committed to a higher level of a dividend payout — going from about 35% to 40% to about 45% to 50%. So we think, starting in 2015, you’ll see some nice dividend increases, and I think overall, it’s a well-managed company,” Simpson said.
“They also have growth in emerging Asian nations like Vietnam, Malaysia and Indonesia, which I think bodes well for them long term,” Simpson added.
DexCom, Inc. (DXCM) CEO Terrance Gregg says the company recently penetrated the pediatric market. He says DexCom received a pediatric label expansion, allowing the company to promote its glucose monitors for pediatric patients as young as two.
“And we’ve never before actually called on that pediatric prescribing base, so that allowed our field sales force now to open up a new market,” Gregg says. “Going into 2014, our installed base of less than 18 years of age was about 8% to 10%, but of course that was off-label use by the prescribing population.”
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Gregg says DexCom can now use on-label promotion within the pediatric community, and has already seen an uptick in use of its products by pediatric patients.
“And in fact, today, about 20% to 21% of our shipments are going to that pediatric community, which is a particularly strong community in adoption of this type of technology,” Gregg says.
Charles Kummeth, who became CEO of Bio-Techne (TECH) in 2013, says the company has gone from negative 1% growth to 3.5% organic growth over the last three quarters under his leadership. Kummeth cites his acquisition strategy and managerial decisions as contributors to that growth.
“For example, we did a deal with Fisher to enhance our market channels for our products,” Kummeth says. “We’ve hired sales people, both in China as well as in key regions of the U.S. We’ve improved our website and continue this process. I’ve brought in additional talent, such as the Head of Commercial Operations that came from Life Technologies.”
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Kummeth says he also wants to build out new testing platforms. He says Bio-Techne currently only sells reagents that go into tests, which have limited value given the small amounts used per test.
“These consumables provide for a very profitable business, but additional value comes from having control over the testing technology,” Kummeth says. “In so doing, I would like for us to provide more full solutions to our customers. We have a lot of in-house talent, and experts in many different laboratory activities and processes — things like recombinant protein expression, biological activity assessment, antibody generation, immunoassay development, multiplexing, Western blotting, flow cytometry, etc. We do all of this here.”
Lead Portfolio Manager Jacques Elmaleh of Steinberg Global Asset Management says AbbVie Inc (ABBV) has been a good investment due to its successful HUMIRA drug, high dividend, and most recently, an attractive deal with Shire PLC.
“They have exclusivity on it on their [HUMIRA] patent I think until the end of the decade,” Elmaleh said. “In the meantime, they have a lot of cash flow. They are paying a high dividend, and you take a little more risk because most of the earnings were coming from HUMIRA, but the idea was that they were going to be able to diversify the company over the decade and diversify the risk away from that.”
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AbbVie recently announced a merger with Shire PLC, Elmaleh says, which is a tax inversion and an attractive deal for both sides.
“There’s a decent premium for Shire, and it’s accretive for AbbVie and their cash flow, and it diversifies their risk because Shire is a pretty good firm on their own, but with AbbVie’s pipeline and HUMIRA, I think they could be a good combination,” Elmaleh said.
Lead Portfolio Manager Jacques Elmaleh of Steinberg Global Asset Management says ENSCO PLC (ESV) is a more cyclical stock than he would normally invest in, but he was reeled in by the dividends.
“The stock is going to pay about $3 in dividends per year. They raised it, and that is what caught our attention and brought us into this stock,” Elmaleh said.
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Elmaleh says ENSCO is an inexpensive stock, and though the industry is a bit cyclical, the dividend is well-covered and he’s expecting a good yield.
“Although there is a little bit of a low in the offshore drilling market, when it does turn, we are getting paid to wait, and there’s a lot of upside there,” Elmaleh said. “In the meantime, we are getting a yield that’s almost 6%.”
Lead Portfolio Manager Jacques Elmaleh of Steinberg Global Asset Management says Lockheed Martin Corporation (LMT) is a timely investment, as the company has been aggressive about raising its dividend and has reached a favorable part of the cycle.
“The company generates very strong cash flows, and it’s a very asset-light business, surprisingly,” Elmaleh said.” They are having a tailwind now on some of their pension costs. The way their pensions work, they pay out the pensions, but then the federal government pays it back, and the government has been a bit slow about it. Now there is some legislation that provides them a catch-up period. So during this catch-up period, their cash flows are going to be very strong.”
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Elmaleh also points to Lockheed Martin’s position in the product cycle, which is translating into a good stock price, he says.
“They spend a lot of money with new projects like the F-35, and the upfront costs are very high. But as they move to different stages of their maturity, the cash flow and the margins start to expand. Their mix of projects is reaching a favorable part of the cycle. They are getting more mature, and they are able to sell some more internationally. And that’s a higher-margin business for them,” Elmaleh said.
“Also the dividend yield is very strong, and they have been able to raise it,” Elmaleh added.
Senior Portfolio Manager Mark Vitelli of Compass Capital Management says that people may not be aware of transformations within Ecolab Inc. (ECL) over the past couple of years.
“Most people know Ecolab from the hand-sanitizer pump or soap dispenser in a restaurant or store…This has been Ecolab’s business for quite a long time, and they are good at it,” Vitelli said.
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Vitelli says that since 2011 Ecolab has acquired two companies that are helping to diversify the company’s revenue stream, which will be beneficial going forward.
“In 2011, they acquired a water company called Nalco. Nalco specializes in both water filtration and cleaning the water used in the process of hydraulic fracking in the energy sector. This transformed Ecolab and enabled them to move into a much higher growth sector,” Vitelli said. “In addition to Nalco, they acquired a privately held, smaller company called Champion Industries in 2012.”
“Their earnings per share have gone from $2.54 in 2011 to a projection of $4.15 this year. So it’s been a substantial positive for the company,” Vitelli added.
Senior Portfolio Manager Jay Jackley of Compass Capital Management says Thermo Fisher Scientific Inc. (TMO), the resulting company from the Thermo Electron and Fisher Scientific merger in 2006, is seeing strength in sales and profits as well as improvements in operating and net profit margins.
“The merger blended the strengths of the two companies really well,” Jackley said. “Over the last five years, they have grown sales and profits at a double-digit percentage rate annually. Over time, they have improved their operating margin, net profit margin and initiated a dividend. In 2009, the company made $5 a share, and they are projected to make $9.50 this year.”
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Jackley’s firm bought the stock in 2012 at $51, and it is currently trading around $118. Jackley says when they bought the stock it was down due to uncertainty surrounding the Affordable Care Act.
“At the end of the day, away from those headlines, there are companies like Thermo Fisher who are developing technologies, products and diagnostic tools to help the researchers find cures for various diseases. No matter what’s going on politically around health care, there remains a lot of human and financial capital devoted to trying to cure diseases. That will continue, regardless of what’s happening in Washington, D.C.,” Jackley said.
