Profiting from Explosive Growth in Medical Technologies

It was a broadly flat week in stock markets across the globe, with the Dow Jones falling 0.13%, the S&P 500 slipping 0.01% and the NASDAQ gaining 0.10%. The MCSI Emerging Markets Index rose 0.32%.

Big gainers in your Bull Market Alert portfolio included Drew Industries Incorporated (DW), which gained another 4.01%, and Cirrus Logic, Inc. (CRUS), which rose 1.90%.

Raise your stop in Drew Industries (DW) to $94.05 to lock in at least a 20% gain on the stock.

Many of your positions hit new 52-week highs including the iShares MSCI Emerging Markets (EEM), The TJX Companies, Inc. (TJX), Drew Industries Incorporated (DW), ABM Industries Incorporated (ABM), Cirrus Logic, Inc. (CRUS) and ProAssurance Corporation (PRA).

The TJX Companies, Inc. (TJX) dropped below its 50-day moving average and moved to a HOLD.

This week’s Bull Market Alert recommendation is Irvine, California-based Masimo Corporation (MASI), a technology company that manufactures non-invasive monitoring devices for use in the medical field.

One example of a Masimo-produced device would be an oximeter, which doctors place on a patient’s finger to monitor oxygen saturation in their blood, thereby making invasive blood tests unnecessary.

The use of non-invasive patient monitoring technology such as the oximeter has increased dramatically in recent years and has become the driving force behind Masimo’s current and future success.

With the stock up 39.75% already in 2016, here’s why I expect Masimo to continue its strong run.

First, Masimo just had two crucial products cleared for distribution by the U.S. Food and Drug Administration (FDA). The approval of the O3 Regional Oximetry monitor will strengthen the company’s position in a $125 million market. Also, the Radius-7 monitor (with rainbow measurement capabilities) also received a regulatory go-ahead for global distribution.

Second, although pulse oximetry is still primarily a domestic business, the technology is spreading rapidly across the world. Masimo recently launched the Pronto Pulse CO-Oximeter, its next-generation SpHb Spot Check technology, for markets specifically outside the United States. The company also recently introduced its next-generation SedLine Brain Function Monitoring technology in London, and the German Heart Center in Berlin recently adopted both this technology and Masimo’s O3 Regional Oximetry technology to monitor patients.

Third, Masimo has established a strong track record of underpromising and then overperforming on its earnings. For Q2, the company reported earnings of 57 cents per share — a surge of 58% compared to the year-ago quarter — and beat consensus estimates by eight cents. Revenues jumped almost 11% year over year to $172.6 million, far ahead of the consensus estimates of $166 million. For all of 2016, Masimo now projects total revenues of $689 million, a nice bump from previous projections of $677 million. The company also now expects to earn $2.01 per share this year, up from earlier estimates of $1.83.

Finally, Masimo is followed by no fewer than nine separate top-performing small-cap growth investment strategies. A lot of smart money is betting on this company’s continued success.

So buy Masimo Corporation (MASI) at market today, and place your stop at $51.25.

I am holding off on recommending options for now.

Portfolio Update

iShares MSCI Emerging Markets (EEM) moved 0.32% higher last week as all of the major indexes hit the brakes and stayed flat. However, EEM did manage a new 52-week high at the start of last week. Emerging markets have been a tough place to be over the past five years or so, with EEM registering a -0.45% and -3.18% for its 3-year and 5-year average returns, respectively. 2016 continues to be the year that emerging markets come back into favor. EEM is a BUY.

The TJX Companies, Inc. (TJX) fell 4.25% from a new 52-week high, despite an earnings beat.  Earnings were $0.84 per share (EPS) on revenue of $7.9 billion, with the consensus earnings estimate coming in at $0.80 EPS on revenue of $7.9 billion. Revenue rose 7.0% year over year, but same-store sales were weaker and led to the pullback. Q3 guidance was also below expectations. TJX dipped below the 50-day moving average (MA) to become a HOLD.

Drew Industries Incorporated (DW) gained another 4.01% last week to hit a new 52-week high. DW began its nearly unbroken rise in early May, and has had nary a down week since my recommendation in mid June. Now up more than 25% in just a few short months, this winner has yet to show signs of tiring and slowing its ascent. Raise your stop to $94.05 to lock in at least 20% gain on this stock. DW continues to be a BUY.

Spire, Inc. (SR) pulled back 1.70% over the past five trading days. Financial services firm Ladenburg Thalmann initiated coverage on Spire last week, setting a price target at $69. SR is a HOLD.

ProAssurance Corporation (PRA) gave back 2.25% for its opening week in the portfolio. The newest addition to your Bull Market Alert portfolio opened the week at a new 52-week high. One of ProAssurance’s strongest segments is its healthcare and professional liability insurance options. With the American society growing more litigious with each passing year — and medical doctors remaining primary targets — PRA’s business model is moving from strength to strength. PRA is a BUY.

Sincerely,

Nicholas A. Vardy