Spacelabs Ready to Launch OSI Systems

I officially went net short by a tad late last week, but I'm still holding on to several longs that look like interesting special situations. To buck this cruddy market, a stock needs a very positive, short-term catalyst, and OSI Systems (OSIS - commentary - Cramer's Take) looks like it has such an imminent event.

OSI has not met my expectations thus far, as the company's security and inspection systems have recently been a money pit, sucking up R&D dollars while offering only future prospects instead of near-term profits. OSI's health care segment, however, has performed well above expectations, and management announced its intention to float a piece of this health care biz on the London Stock Exchange's AIM market by the end of this year.

" [W] ith the IPO process under way," I wrote on Sept. 27, "I think it is the wrong time for value investors to bail on OSI. If Spacelabs -- as the new, profitable health care firm will be called -- can garner a multiple of just one times revenue, it would earn a market cap of around $200 million. OSI's total market cap now is just under $250 million. I think the odds of such a valuation are high, and if this scenario plays out, it cannot help but boost OSI's price, even if the security segment continues to be a drain."

Well, the IPO of Spacelabs looks like it is going to happen much sooner than anticipated. The latest word from the underwriter is that the first day of trading is expected to be this Thursday, Oct. 20. Although no one can gaurantee that some last-minute wrench won't be thrown into this IPO's works, I'm buying here in anticipation of it going off cleanly.

While the road to this IPO has certainly been short, it has not been without some bumps.

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At the time of publication, Moreland was long OSI Systems, although holdings can change at any time.

Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights, founder of the Web site InsiderInsights.com and the director of research at Insider Asset Management LLC. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.