Newsletter Watch: Small-cap medical stocks
Ticker Tape Digest newsletter editor Leo Fasciocco has an intriguing approach to selecting stocks. Although he focuses on fundamentals, the basis of his stock-picking strategy is rooted in technicals — more specifically: breakouts.
All of his “long” recommendations are stocks that are rising from a long-term base and are either poised to break out or have just broken out above resistance levels. (Conversely, his short sale recommendations are stocks that have broken down from a base and are poised to move below support.)
Two of his latest “breakout buys” are small-cap medical plays: Natus Medical (Nasdaq:BABY), which develops medical exams to diagnose medical disorders in fetuses and infants and Kensey Nash (Nasdaq:KNSY), which makes absorbable medical devices to seal arterial punctures created during diagnostic and therapeutic cardiovascular procedures.
Natus, based in San Carlos, Calif., has annual revenues of $130 million. Its products include ALGO, a screening device to test newborn hearing; Minimuff, an ear cover that reduces the noise an infant hears in neonatal intensive care units; and LED phototherapy systems to treat babies with jaundice.
Technical, he says that the stock has recently broken out from a 10-week flat base. “That action could well draw in new buying. The key is to notice that the price paid for blocks of stock have risen, which shows institutions are willing to pay up,” he says.
The stock has appreciated 45% the past 12 months, which, he says easily outperformed the 15% decline in the S&P 500 index. Overall, Fasciocco is bullish the stock's technicals and notes that its momentum indicator is extremely positive. He says that the accumulation/distribution line has hit a new high, which he believes is “confirmation that BABY's breakout is being supported by good buying.
”In line with its technical breakout, Fasciocco reports that BABY recently upgraded its earnings outlook for the year. The Street, he says, now looks for profits to soar 48% to $0.69 a share from $0.47 a year ago. The stock also sells with a P/E ratio of 31, he says. Next year, analysts expect a 27% gain in net to $0.88 a share.
He adds that institutional sponsorship is excellent. The largest fund holder is 5-star rated UMB Scout Small Cap Fund with a 1.3% stake. Fasciocco says that it was a recent buyer of 50,000 shares, and that 5-star rated Brazos Micro Cap Y Fund was a recent purchaser of 60,000 shares.
Adding to the stock’s appeal, he says that insider activity is bullish. “Insiders have been steady buyers using stock options. They have done very little selling.” With its strong profit outlook, “BABY is a very good intermediate term play.
”Kensey Nash, based in Exton, Pa., has annual revenues of $75 million. Its products are used for angiography, angioplasty, and the placement of stents. The firm also makes collagen-based burn treatments, wound dressings and dental surgery aids.
Technically, the stock has already broken out of a short-term base, and according to Fasciocco, is poised to breakout from a long-term base as well.
“Kensey has broken out from a five-week, cup-and-handle base, and while this base is brief in time,” the stock is also poised for a long-term breakout. “If the stock can hurdle 36, it would be very bullish long term,” he says.
The stock has risen 29% the past 12 months, he says, compared with an 18% drop in the S&P 500 index; volume during the basing work has expanded on days when the stock closed higher for the day. That, he says, shows a good pattern of accumulation. According to the technician, the stock's momentum indicator is also extremely bullish.
This fiscal year ending June 30, he reports, analysts look for a big 85% surge in KNSY's net to $0.98 a share from $0.53 a share a year ago. The stock sells with a P/E ratio of 35. “We see that as attractive to aggressive growth-value institutions,” Fasciocco says.
Net for fiscal 2009 ending in June should advance 64% to $1.61 a share from the anticipated $0.98 a share in fiscal 2008.
Fasciocco rates the stock’s institutional sponsorship as “very good,” noting that a key buyer recently was 5-star rated UMB Scout Small Cap Fund, which purchased 50,000 shares. Also, he says, 5-star rated Lord Abbett Micro Cap Value Fund added 31,000 shares.
“KNSY is an excellent intermediate-term play due to its strong earnings outlook. We are targeting a move to 32 within the next few months,” he says.
For more on both companies, read “Natus Medical Inc.: Hear it first” and “Kensey Nash: What a difference a year makes.”
Steven Halpern has just compiled a 35-page report on alternative energy, featuring the favorite solar, wind, nuclear, coal and natural gas stocks from the nation's leading financial newsletter advisors. The report is available for free to all Small Cap Newsletter readers.
All of his “long” recommendations are stocks that are rising from a long-term base and are either poised to break out or have just broken out above resistance levels. (Conversely, his short sale recommendations are stocks that have broken down from a base and are poised to move below support.)
Two of his latest “breakout buys” are small-cap medical plays: Natus Medical (Nasdaq:BABY), which develops medical exams to diagnose medical disorders in fetuses and infants and Kensey Nash (Nasdaq:KNSY), which makes absorbable medical devices to seal arterial punctures created during diagnostic and therapeutic cardiovascular procedures.
Natus, based in San Carlos, Calif., has annual revenues of $130 million. Its products include ALGO, a screening device to test newborn hearing; Minimuff, an ear cover that reduces the noise an infant hears in neonatal intensive care units; and LED phototherapy systems to treat babies with jaundice.
Technical, he says that the stock has recently broken out from a 10-week flat base. “That action could well draw in new buying. The key is to notice that the price paid for blocks of stock have risen, which shows institutions are willing to pay up,” he says.
The stock has appreciated 45% the past 12 months, which, he says easily outperformed the 15% decline in the S&P 500 index. Overall, Fasciocco is bullish the stock's technicals and notes that its momentum indicator is extremely positive. He says that the accumulation/distribution line has hit a new high, which he believes is “confirmation that BABY's breakout is being supported by good buying.
”In line with its technical breakout, Fasciocco reports that BABY recently upgraded its earnings outlook for the year. The Street, he says, now looks for profits to soar 48% to $0.69 a share from $0.47 a year ago. The stock also sells with a P/E ratio of 31, he says. Next year, analysts expect a 27% gain in net to $0.88 a share.
He adds that institutional sponsorship is excellent. The largest fund holder is 5-star rated UMB Scout Small Cap Fund with a 1.3% stake. Fasciocco says that it was a recent buyer of 50,000 shares, and that 5-star rated Brazos Micro Cap Y Fund was a recent purchaser of 60,000 shares.
Adding to the stock’s appeal, he says that insider activity is bullish. “Insiders have been steady buyers using stock options. They have done very little selling.” With its strong profit outlook, “BABY is a very good intermediate term play.
”Kensey Nash, based in Exton, Pa., has annual revenues of $75 million. Its products are used for angiography, angioplasty, and the placement of stents. The firm also makes collagen-based burn treatments, wound dressings and dental surgery aids.
Technically, the stock has already broken out of a short-term base, and according to Fasciocco, is poised to breakout from a long-term base as well.
“Kensey has broken out from a five-week, cup-and-handle base, and while this base is brief in time,” the stock is also poised for a long-term breakout. “If the stock can hurdle 36, it would be very bullish long term,” he says.
The stock has risen 29% the past 12 months, he says, compared with an 18% drop in the S&P 500 index; volume during the basing work has expanded on days when the stock closed higher for the day. That, he says, shows a good pattern of accumulation. According to the technician, the stock's momentum indicator is also extremely bullish.
This fiscal year ending June 30, he reports, analysts look for a big 85% surge in KNSY's net to $0.98 a share from $0.53 a share a year ago. The stock sells with a P/E ratio of 35. “We see that as attractive to aggressive growth-value institutions,” Fasciocco says.
Net for fiscal 2009 ending in June should advance 64% to $1.61 a share from the anticipated $0.98 a share in fiscal 2008.
Fasciocco rates the stock’s institutional sponsorship as “very good,” noting that a key buyer recently was 5-star rated UMB Scout Small Cap Fund, which purchased 50,000 shares. Also, he says, 5-star rated Lord Abbett Micro Cap Value Fund added 31,000 shares.
“KNSY is an excellent intermediate-term play due to its strong earnings outlook. We are targeting a move to 32 within the next few months,” he says.
For more on both companies, read “Natus Medical Inc.: Hear it first” and “Kensey Nash: What a difference a year makes.”
Steven Halpern has just compiled a 35-page report on alternative energy, featuring the favorite solar, wind, nuclear, coal and natural gas stocks from the nation's leading financial newsletter advisors. The report is available for free to all Small Cap Newsletter readers.
About the Author
As a newsletter editor and financial journalist, Steven Halpern has covered the investment newsletter industry for 25 years.
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