This week I'll take a look at two medical stocks with good stories and some extremely positive insider buying trends.
, the largest independent clinical laboratory in the Northeast, is a microcap that has had a stellar year. It's 327% above the $1.50 where it began 2001, and after showing some weakness this summer, it's just now hitting new yearly highs.
Judging by the way insiders bought during the short-term weakness, they seem to expect that the factors that moved the stock up from the beginning of the year will continue to push it higher. And good ol' fashioned revenue and earnings growth have been moving Bio-Reference this year.
The company has a healthy share of the market for testing blood, urine, tissue and genes sent to it by physicians, hospitals, clinics and prisons. The company has shown excellent earnings growth by simply increasing its revenue much faster than its fixed costs. In its third quarter (ended July 31 and announced on Sept. 11), Bio-Reference increased revenue by 23% year over year and earned 6 cents a share instead of the penny it banked last year. This was the company's 10th consecutive quarter of record revenue.
While Bio-Reference's gross margin has stayed consistently at 45% of revenue, its operating margin increased from 2.7% last year to 5% this year. Taming general and administrative costs has its benefits.
The 1.5 million shares placed by Bio-Reference for $1 each last May were purchased by a limited partnership controlled by Morton Topfer, a director of Bio-Reference. Mr. Topfer has quite the pedigree, having held top positions at both
Mr. Topfer was one of the two insiders who purchased 26,000 shares of Bio-Reference in late September at an average price of $3.14. He also bought in July and August at prices as high as $4.60.
The stock is up a good 45% since I first recommended it on Oct. 21, but I still think BRLI has legs. Recent contract announcements have given this stock some momentum, and Friday looked like a "breakout" day for making this an interesting prospect for short-term traders. Set stop losses in case the breakout fails, though.
was recovering well from Sept. 11 when it dropped a bombshell of its own at the end of September. It announced a major change in the way it does business, transforming itself from physician practice management firm to one with a service-line structure that divides the company into its three core oncology segments: pharmaceutical management, outpatient operations and R&D services.
This strategic change will result in financial statements that will soon look much different, and it caused the stock to plunge 44%, because the company will be selling assets and eliminating a decent chunk of revenue. But it will also be reducing debt substantially, as well as a lot of other costs associated with the lost revenue.
Though the company's stock price had more than doubled in the 12 months leading up to Sept. 11, all was not quite well with the firm. Trading since the mid-1990s, the stock peaked at $27 in 1996, and has shown a nasty habit of gapping down after attempting to gain momentum. Also, there were signs even before Sept. 11 that business was slowing and a change was needed.
Management clearly thought the time was nigh to make the change, and also clearly believed that the whack to the stock caused by the restructuring announcement was very much overdone. Six insiders took advantage of the plunge to pick up $360,585 worth of their company's shares at an average cost of $4.87. Many of the insiders' purchases represented sizeable increases in their positions, and two had smartly sold shares near the peak in the mid-1990s.
But these purchasers were pikers compared with director Russell Carson, who picked up over 9 million shares recently for a limited partnership for which he is a managing member. A veteran of the industry, Mr. Carson is a director of
Select Medical Corporation
Quorum Health Group
, as well as various other privately held health care companies.
Mr. Carson was last seen selling the stock in 2000, but obviously likes the company's new direction.
Though there was one insider selling US Oncology in October, his trades were minor in comparison with the rush of buying. And the cluster of buying was also a significant shift from the insider selling that was prevalent in the year leading up to the restructuring.
The three analysts following the stock rate it a hold but still expect the firm to earn over 50 cents a share in the next two years. It should also be noted that this is no rinky-dink operation. US Oncology generated around $1.5 billion in revenue over the past 12 months. Giving up some top line now for better growth and profits in the future is not a bad tradeoff -- but executing the strategy change will have its challenges.
The good news is that the people who have to execute that change just increased their stakes in any future payoff.
Last week's very public jousting between OPEC and noncartel oil producers about quotas obviously added to the short-term volatility of energy-related stocks, which I
wrote about last week. While I still have gains in most of them, I have set stop losses to make sure I don't get hurt in this catfight. If I entered this sector too early, I'm willing to take a little hit now and enter again later.
The fact that the utterance of the possibility of $10-a-barrel oil by OPEC officials didn't cause energy stocks to plummet further gives me some confidence that this is probably going to end up more posturing than policy. But cats can be difficult to predict.
Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights and founder of the Web site InsiderInsights.com. At the time of publication, Moreland had no position in any of the securities mentioned in this column, although holdings can change at any time. 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 invites you to send comments on his column to
and Moreland are parties to a joint marketing agreement relating to
, a weekly newsletter written and owned by Moreland. Under the agreement,
provides marketing services, including promotion of
Web properties and in his columns that appear on those properties. In exchange for these services, Moreland shares with
a portion of the revenue generated by subscriptions to
resulting from those marketing efforts.