I am reviewing an old watch list with a handful of "medical device" names I followed around the time I found Intuitive Surgical (ISRG) back in the middle part of the decade. NuVasive (NUVA) was a name that had one big pop at the time, and then traded sideways for a long time (between $15 - low $20s) for a long time. So I stopped following the name. Well it appears the past few years to have broken that range. This is yet another name where valuation makes little sense to me but this market is so starved of non commodity "growth", that market players appear willing to pay any price. The stock popped last night after a steller earnings report but profitability is just now beginning. Even if next year (2009) estimates are surpassed and the company earns something in the low .50s, it is already trading at more than 100x forward earnings. Gross margins of 80%+ are simply mouth watering however....
So we had a gap up after earnings and in this market where gains are fleeting we gave it all back. I've been waiting patiently for the "gap" to fill - an exercise that has proved fruitless with other stocks but in this case we just got it today as the stock backfilled to the mid $47s. However, this puts the chart in precarious condition as it is now under the 50 day moving average, at $50. So we'll start small and we want to see it break back above that price point to add to our position as this would signify strength. If not, this name could fall to ?? as valuation is irrelevant.
There is one potential fly in the ointment since the last earnings report and that is a patent infringement filed by Medtronic (MDT)
- NuVasive Inc., which makes spinal implants, said Tuesday that a unit of rival medical device maker Medtronic Inc. has filed a patent lawsuit against several of its products. The filing by Medtronic Sofamor Danek alleges that several Nuvasive spinal care products infringe older patents held by Minneapolis-based Medtronic, the world's largest medical device firm.
- Medtronic has made huge investments in building its spinal business, particularly with the $4 billion buyout of Sunnyvale, California-based Kyphon Inc. last November.
We're starting with a 0.9% stake in the $48s until we can see if the stock regains the 50 day moving average. Over and above that level we'll add to our exposure. Or on a pullback to the 200 day moving average down near $43. At this place in the chart it is in no man's land, but we are able to start our position nearly 20% off prices reached only two weeks ago.
With a company of this size ($2 billion) that has a dominant niche, we also always carry the potential for takeover from a larger medical equipment company starving for this sort of growth. So that's another upside potential in a name like this.
Company website here
Very detailed background story and interview in the highly read (ahem) MX magazine.
Fox6 News report in San Diego showing a video clip of the technology
Long NuVasive in fund; no personal position
