Bookkeeping: New Position #1 - Luminex (LMNX)

I'm starting 2 new positions - these have both been found over the past 4-8 weeks as I've been looking for stocks strong on technicals. Then I've been parsing that group into stocks that (a) have strong fundamentals (b) are not in the tug of war between financials and commodities and (c) are too small for hedge funds to own too much and thus won't be too exposed to the "forced selling" effect as HAL9000 is forced to puke up positions. I have a list of about 15-20 ranked in order of interest, and 2 of them fell to a key support level this morning so I began starter positions in each.

First is Luminex (LMNX) who continues our trend into healthcare stocks. (website here) Luminex is like a baby Illumina which was one of our big winners that we recently exited as the chart weakened. Corporate fact sheet here. At today's prices it is worth exactly $1 Billion in market cap.

Luminex Corporation develops, manufactures, and sells proprietary biological testing technologies and products for applications in the life sciences industry. It offers xMAP technology, an open architecture and multiplexing technology, which allows simultaneous analysis of up to 100 bioassays. The company's technology is used in various segments of the life sciences industry, which includes the fields of drug discovery and development, clinical diagnostics, genetic analysis, bio-defense, protein analysis, and biomedical research.

So, similar to Illumina it's an assay and consumables type of company [Dec 20: Nice Write up on Illumina] but a much smaller company in terms of profitability and size. While fundamentals matter little in this market, we'll focus on the chart. Luminex has had a great year, running from $16 to as high as upper $26s year to date. I've been waiting for a pullback, but it is frankly higher than where I first started watching it as it has had a relentless run despite the market turmoil. Finally the past 5 sessions did it begin to pullback. The 50 day moving average is $23.75 and stock fell to $24 both yesterday and this morning. This is my favorite type of chart to buy - strong stock on pullback, but it is also a dangerous chart because either we (a) bounce or (b) breakdown. You never know in advance. So a break into the lower $23s would be a signal to cut back (or out) but we anticipate a bounce from this setup.

For the old fashioned types who still think fundamentals matter here is the last earnings report and a summary

• The Austin, Texas, company said it lost $959,000, or 3 cents per share, in the second quarter. A year ago, Luminex took a loss of $12.1 million, or 34 cents per share. Revenue jumped 39 percent, to $24.3 million from $17.5 million, as the technology business became profitable and the assay group took a smaller loss.
• Luminex also backed its full-year revenue forecast of $95 million to $105 million.
• Analysts had expected a deficit of 3 cents per share on $23.4 million in revenue, according to Thomson Financial. They forecast $99.5 million in revenue for 2008.
• Revenue for the technology group climbed to $20.3 million from $13.6 million. Assay revenue increased to $4.1 million from just under $4 million.
• System shipments of 203 resulting in cumulative shipments to date of 5,402, up 19.4 percent from a year ago; representing the seventh consecutive quarter of system shipments of 200 or more
• In a client note, Thomas Weisel analyst Peter Lawson raised his revenue estimate and predicted a smaller full-year loss for Luminex because of the improvement in sales and margins. He now expects a loss of 4 cents per share on $100.3 million in revenue, up from a loss of 8 cents per share and $98.5 million in sales. Lawson also boosted his price target to $23.50 per share from $21.

2009 should be the first year Luminex turned profitable. Gross margins are a solid 68% as of last quarter. Again I really like this models - you sell the equipment and then have a reoccuring stream of revenue from the consumables - we have this in Intuitive Surgical (ISRG) or China Medical (CMED) as companies who have similar "razor" and "blade" models.

We began Luminex as a 1.7% stake in the mid $24s range.

Long Luminex in fund, no personal position