Cyberonics: Growth in Medical Equipment

CHARLOTTE, N.C. ( TheStreet) -- I like growth stocks and so should you. The object of managing your own portfolio is to whittle down the 12,000 stocks you might invest in and find the dozen you need for your portfolio that fits all of your criteria and has the best chance to beat the market.

I think the medical appliance and equipment company Cyberonics ( CYBX) is that kind of stock and I'll walk you through the reasons why.

First I like to see price momentum. If the market isn't responding to a stock, why should you? In the past month the stock has been up almost 8% as you can see in this hourly trading chart provided by Barchart:

The recent momentum is there but how has the stock done against the rest of the market? During the past six months, the market as measured by the Value Line Index is up about 3% but CYBX is up 23%:

Cyberonics, a neuromodulation company, engages in the design, development, sale, and marketing of implantable medical devices that provide vagus nerve stimulation therapy for the treatment of refractory epilepsy and treatment-resistant depression. Its proprietary VNS therapy system consists of a generator to provide the stimulation to the vagus nerve; a lead that connects the generator to the vagus nerve; associated equipment to assist with implantation surgery; equipment to assist with setting the stimulation parameters particular to the patient; instruction manuals; and magnets to suspend or induce stimulation manually.

The company sells its products through a direct sales force in the U.S., as well as through a combination of direct sales representatives and independent distributors internationally. Cyberonics was founded in 1987 and is headquartered in Houston (according to a Yahoo Finance profile).

Factors to consider:

Barchart technical indicators:
  • 100% Barchart technical buy signal
  • Trend Spotter buy signal
  • Above its 20-, 50- and 100-day moving averages
  • 7 new highs and up 7.78% in the last 20 trading sessions
  • Relative Strength Index 68.78
  • Barchart computes a technical support level at 36.44
  • Recently traded at 41.62 with a 50 day moving average of 38.31
  • Fundamental factors:
  • Wall Street has already noticed this stock and six brokerage firms have assigned nine analysts to make a recommendation
  • Analysts project revenue will increase by 11.40% this year and another 13% next year
  • Earnings are estimated to increase by 16.7% this year, an additional 20.1% next year and continue at an annual rate of 26.25% over the next five years
  • These estimates resulted in five strong buy, two buy, two hold and no underperform or sell recommendations to clients
  • If the numbers hold investors should see an 11%-to-15% annual rate of return for at least five years
  • The company has a B+ financial strength rating
  • The P/E of 29.56 is higher than the market P/E of 14.40 and the stock pays no dividend
  • Medical ETFs are beginning to accumulate shares
  • The company is expanding sales in Europe and Japan
  • The research and development budget is being spent in new product development in rechargeable batteries, seizure detection and sleep apnea devices
  • Investor Interest:
  • Some of the firms with recent upgrades were Kaufman Brothers and Zachs.
  • Stock strategist Charles Payne spoke positively about the company.
  • The readers of TheStreet give the stock an A- rating.
  • Competition:

    The market is the best scorecard and I always like to invest in sector leaders by charting how the stock does against the rest of the competition. During the past year Medtronics ( MDT) was down 4%, as was Covidien ( COV). Baxter International ( BAX) was down even further, by 13%, while Cyberonics soared 53%:

  • Revenue projected to increase by 1.90% this year and 3.10% next year
  • Earning estimated to be up 5.80% this year and 5.50% next year
  • TheStreet readers rate the stock A-
  • Baxter International:
  • Revenue projected to increase by 2.50% this year and 4.50% next year
  • Earnings estimated to be up 5.10% this year and 8.20% next year
  • TheStreet readers rate the stock A-
  • Covidien:
  • Revenue projected to be up 2.80% this year and 4.80% next year
  • Earnings estimated to increase by 8.30% this year and 7.70% next year
  • The readers of TheStreet rate the stock A-
  • Summary: Cyberonics has double-digit projections for both sales and earnings and a B+ balance sheet. The recent price momentum shows others are finding this stock. The readers of TheStreet rate all four stocks A- but CYBX has superior growth projections. To make sure you are not too late to the party I'd advise you to watch the 100-day moving average and the lower 14-day turtle chart if a weakness is signalled:

    At the time of publication the author had no shares of Cyberonics although it is on his watch list.
    At the time of publication the author had no shares of Cyberonics although it is on his watch list.