Dykstra: Testing LabCorp's Resilience

A customer loss earlier this month drove the stock lower, creating a good opportunity.
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In order to excel in athletic endeavors, a great deal of energy is required and athletes must "fuel" their bodies to maintain optimal performance. Unfortunately, sometimes an individual's energy is depleted, requiring testing to unearth the reason for the power outage.

And speaking of testing, my pick on this exquisite Thursday morning will be

LabCorp

(LH) - Get Report

, which closed trading Wednesday at $72.04. This company remains somewhat unknown to the public, even though it is dominant in testing, serving more than 220,000 clients every day.

Based in Burlington, N.C., the 25,000-employee LabCorp provides a broad range of tests, including everything from routine medical testing to the diagnosis and monitoring of diseases. Total revenue in 2006 was more than $3.6 billion.

As I discussed in

yesterday's column

about

Johnson & Johnson

(JNJ) - Get Report

, the health care industry has been growing at an especially fast pace, and independent clinical laboratories like LabCorp have benefited greatly from the growth in the health care sector.

The stock took a beating in early March after LabCorp lost a major contract with insurance provider

Aetna

to

Quest Diagnostics

(DGX) - Get Report

. Although this loss hurts LabCorp's bottom line for fiscal year 2007, the decline in the stock price was an overreaction; in a volatile stock market, the highs and lows of each stock tend to reach farther toward the extremes.

Despite losing 11% in one day, the long-term outlook still remains strong for this company, and LabCorp shares have slowly regained value and should continue to do so. Regardless of the direction the economy takes, the demand for such tests will continue to grow.

Also, LabCorp recently announced a $500 million stock repurchase program. Bottom line: This is a great company that prints money -- in 2006 free cash flow was just shy of $500 million -- and the stock provides an excellent opportunity to use my deep-in-the-money call strategy.

To capitalize on the situation, I am going to place an order to buy 10 August 60s (LHHL). This particular strike price has not traded yet, but I am going to put my GTC buy order in at $12.90. With the stock closing yesterday at $72.04, if I get filled at $12.90, there will be 86 cents in premium for a $72 stock! That's a very small price to pay for the right to control 1,000 shares of a rock-solid company.

I'm not alone in favoring this stock: noted value investor Glenn Greenberg of Chieftain Capital, who is up 22% this year, also has a position in

LabCorp

.

Game of Life

With a dearth of activity in the major sports, I thought I would focus on some of the other sports that do not always receive their just due.

Fans marvel at athletes who consistently dominate their sport. Therefore, it comes as no surprise that Tiger Woods won the stroke play competition at the Tavistock Cup in Orlando, Fla., shooting an 8-under-par 64. This is the third consecutive year that Tiger has won the individual title.

Meanwhile, Tiger's good friend Roger Federer lost in the fourth round of the Sony Ericsson Open in Key Biscayne, Fla. The fact that his conqueror, Guillermo Canas, beat him for the second time this month is worthy of headlines, given Federer's virtual invincibility over the past year. Canas' first win over the Swede ended Federer's 41-match winning streak two weeks ago in Indian Wells, Calif. Nonetheless, the argument is being made that Federer is as dominant as Tiger, if not more so.

On the football front, the news comes from off the field, and in the

Monday Night Football

booth. NFL commissioner Roger Goodell is in the process of rolling out his player-conduct policy in the wake of several arrests of NFL players this past year. Rest assured Goodell's policy regarding discipline and punishment of offenders, particularly repeat offenders, will have some teeth.

Speaking of teeth, Ron Jaworski, known as Jaws, will replace Joe Theismann as the analyst on

Monday Night Football

. Jaworski's voracious appetite for film study will undoubtedly serve him well in his new position.

From Jaws, let's go to the often-overlooked sport of swimming. Ordinarily, we do not hear about swimming unless it is the Olympics. However, the World Championships taking place in Melbourne, Australia, could generate an epic performance by Michael Phelps. As you recall, Phelps earned 6 gold medals and 2 bronze medals at the 2004 Athens Olympics, narrowly falling short of Mark Spitz's unprecedented seven gold medals at the Munich Olympics in 1972.

Thus far in Melbourne, Phelps has won three gold medals in three events -- the 400-meter freestyle relay, the 200-meter freestyle, and the 200-meter butterfly. In the 200 freestyle, he broke Australian Ian Thorpe's (the "Thorpedo") record from six years ago by 0.2 seconds, while in the 200 butterfly, he shattered his own record by 1.62 seconds. Phelps will swim the 200-meter and 400-meter individual medleys, in which he owns the world record in both, as well as two more relays and the 100-meter freestyle.

It appears as though Phelps, who plans on swimming eight races in the 2008 Olympics, will have a legitimate chance to equal or eclipse Spitz's hallowed mark in Beijing.

Always remember: Life is a journey, enjoy the ride!

At the time of publication, Dykstra was long JNJ.

Nicknamed "Nails" for his tough style of play during his Major League Baseball career, Lenny Dykstra was an integral member of the powerful Mets of the mid-1980s, including the world champion 1986 squad, and the Phillies in the early 1990s.

Today, Dykstra manages his own stock portfolio and serves as president of several of his privately held companies, including car washes; a partnership with Castrol in "Team Dykstra" Quick Lube Centers; a state-of-the-art ConocoPhillips fueling facility; a real estate development company; and a new venture to develop several "I Sold It on eBay" stores throughout high-demographic areas of Southern California.