Good News or Bad, Martek Looks Like a Buy

One of my favorite turnaround stories, Martek Biosciences (MATK - commentary - Cramer's Take), a name I followed as an analyst, has gotten cheaper, and mostly on general market turmoil. With the company set to report earnings at the end of the day on Dec. 12, the report could offer an opportune catalyst for the stock this week. In any event, I view MATK as a long-term buy.

At the conclusion of my Oct. 13 column, "Riding the Martek Roller Coaster," I wrote, "we view MATK [as] attractive now for picking at, and would certainly look to add shares on any broad market weakness." Broader market weakness has, in fact, played a role in Martek's shares' decline off its high.

Keeping risk in mind, we have to ask, is there good reason for this decline that might be related to systematic risk, and what other reason might exist? I believe there is some risk, because if consumers are constrained and food prices are generally high, it may matter less to price-sensitive shoppers whether there is healthy-for-your-heart lifesDHA™ in their food or not.

However, I do not think the economic situation has progressed enough to significantly impact the health pay-up purchase, and more importantly, Martek is making great inroads in a good deal of food categories and with new business partners.

Still, analysts are being challenged to understand the importance of price vs. the food products' penetration opportunity. For now, I expect the existing trend of penetration growth to prevail in driving operational results, as the opportunity remains significant and relatively untapped.

The shares currently trade at about 30 times the $0.86 consensus EPS estimate for fiscal year 2008 (Oct.). Analysts have yet to revise long-term EPS growth forecasts much, and still look for a five-year rate of 18%.

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At the time of publication, Kaminis had no positions in the stocks mentioned, although positions may change at any time.

Markos N. Kaminis, the Wall Street Greek, is currently building his own financial advisory business. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kaminis appreciates your feedback; click here to send him an email.