Archive for January, 2006

  • Radiating Success
    , January 18th, 2006 at 5:39 am

    IBD profiles Varian Medical Systems (VAR):

    It’s not every day that a hospital spends a couple of million dollars on a new piece of equipment.
    But it’s happening a lot more often, thanks to a new product from Varian Medical Systems.
    Varian’s cancer therapy systems are used to treat thousands of patients a day. The company dominates the market for radiation therapy treatment, which is used for a number of types of cancer.
    Varian is just now entering the first stages of a new product cycle. That fuels sales for Varian as well as the industry as a whole.
    Of course, it’s nice when your firm practically is the industry. Varian controls about 60% of the global share of radiotherapy treatment, says analyst Mark Lanyon of Morningstar. That number is more like 70% in North America.
    “You rarely see a company in any industry with that level of global market share,” Lanyon said. “They dominate this niche.”
    With the new product cycle, Varian is cranking out even more business. The impact is just taking effect.
    “The last few quarters, we’ve started to see acceptance ramp up,” Lanyon said.
    On Target
    Varian’s image-guided radiation therapy system, known as IGRT, is leading the new cycle.
    The product features the same core technology as its previous version, called intensity modulated radiation therapy, or IMRT, which launched in 1999.
    The IGRT system is designed to be more accurate and efficient than its predecessor. When you’re zapping cancerous cells with radiation, the more accuracy you have, the less likely healthy tissue is damaged.
    IGRT lets hospitals account for a tumor’s small movements. It can even adjust for shifts of up to one inch that take place when a patient breathes in and out.
    “People have been talking about a magic bullet for a long time,” said Varian Chief Executive Dick Levy. “That’s usually a drug that kills damaged cells and leaves healthy ones untouched. IGRT is getting close to the magic bullet.”
    Varian’s IGRT sales accelerated in the last two quarters of fiscal 2005, which ended in September. That should continue. Acceptance of the product has already come three times faster than IMRT. And IGRT just picked up Medicare reimbursement starting Jan. 1.
    “That should really facilitate order growth,” said Ryan Rauch, analyst at Jefferies & Co. “Reimbursement has improved, so this is really profitable for hospitals.”
    A survey Rauch’s firm did of 450 radiation oncologists showed 61% plan to upgrade to an IGRT system in the next year.
    Varian is getting higher prices per sale, too. Its prior system sold for about $1 million. The upgraded system runs about $2 million.
    Tight Focus
    The new product helped Varian’s fiscal fourth-quarter sales rise 12% from the prior year to $386 million. Earnings increased 22% to 45 cents a share. Sales for all fiscal 2005 gained 12% to $1.38 billion, while earnings rose 27% to $1.50 a share.
    Analysts polled by First Call expect Varian’s profit this year to climb 18% to $1.77 a share.
    The company battles huge firms such as Siemens and Philips. Varian’s advantage is that it’s been tightly focused on this area for decades, while the others run far-flung companies.
    Varian’s research strength helps it carry the best technology and the most diverse product set while it offers the best service, Rauch says.
    Global Play
    Beyond IGRT, Varian has other factors boosting its results. It’s getting a boatload of growth from its international business, Lanyon says. And it has the chance to gain share in Eastern Europe and Asia.
    “They can win business that didn’t exist before,” Lanyon said.
    Even in Western Europe, the number of radiation machines per capita is one-third what it is here, Levy says. Many countries there are committed to boosting that percentage.
    Varian’s international order growth rate has ranged from 20% to 30% the past four years, Lanyon says. The U.S. rate has been less than 10%.
    A rise in the cancer rate also will boost Varian’s sales. The rate in the U.S. is projected to swell by 50% by 2020, Lanyon says.
    Meanwhile, Varian looks to increase sales of other products. Sales for its smaller X-ray products unit rose 18% last fiscal year, thanks partly to its new line of flat-panel image detectors. These replace the need for film and let doctors read X-rays instantly.
    The market for flat-panel detectors is around $150 million, Levy says. It could reach $2 billion in the next decade.
    Varian uses the X-ray unit’s technology to make detectors used in busy ports like the one in Long Beach, Calif. The product can screen cargo containers for bombs.
    How much business could this market generate?
    “It could be enormous or it could be nothing,” Lanyon said.
    Another uncertainty is how much reimbursement Medicare will offer for Varian’s radiation products. If governments change their minds, they could slash payments by half, Lanyon says.
    “That’s one of those land mine risks that could derail it,” he said.
    Levy, 67, is retiring next month, to be replaced by President Timothy Guertin. Analysts don’t see that as a concern. Levy will remain as chairman, and Guertin has been with the firm for 30 years.
    “I don’t want to downplay the importance of Dick Levy,” Rauch said. “He’s going to be missed. But I don’t think they’ll miss a beat.”

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  • Turmoil in the Japanese Markets
    , January 18th, 2006 at 5:27 am

    Volatility has finally returned, but not here—in Japan. The Japanese Nikkei 225 Index (^N225) got slammed for the second straight day. On Tuesday, the index fell 2.8%. Then it fell another 2.9% on Wednesday. Today’s session was cut short due to a surge of transactions.
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  • Happy 300th Birthday Benjamin Franklin
    , January 17th, 2006 at 1:04 pm

    The ulitmate buy-and-hold investor:

    At his death, Franklin bequeathed £1000 (about $4400 at the time) each to the cities of Boston and Philadelphia, in trust for 200 years. The origin of the trust began in 1785 when a French mathematician named Charles-Joseph Mathon de la Cour wrote a parody of Franklin’s Poor Richard’s Almanack called Fortunate Richard. In it he mocked the unbearable spirit of American optimism represented by Franklin. The Frenchman wrote a piece about Fortunate Richard leaving a small sum of money in his will to be used only after it had collected interest for 500 years. Franklin, who was 79 years old at the time, wrote back to the Frenchman, thanking him for a great idea and telling him that he had decided to leave a bequest of 1,000 pounds each to his native Boston and his adopted Philadelphia, on the condition that it be placed in a fund that would gather interest over a period of 200 years. As of 1990, over $2,000,000 had accumulated in Franklin’s Philadelphia trust since his death. During the lifetime of the trust, Philadelphia used it for a variety of loan programs to local residents. From 1940 to 1990, the money was used mostly for mortgage loans. When the trust came due, Philadelphia decided to spend it on scholarships for local high school students. Franklin’s Boston trust fund accumulated almost $5,000,000 during that same time, and eventually was used to establish a trade school that, over time, became the Franklin Institute of Boston.

    Pretty cool.

  • Boston Scientific Strikes Back
    , January 17th, 2006 at 10:10 am

    $80 a share for Guidant (GDT).
    BSX has pushed all its chips to the center of the table. They’re also getting help from Abbott Labs (ABT).
    Here’s the press release, and here’s a timeline of the Guidant War from the beginning.

  • The Gold Rush of 2006
    , January 17th, 2006 at 7:35 am

    Another reason why I’m not a gold bull: Higher prices mean more exploration.
    It’s always been this way. The panic of 1893 and the Free Silver candidacy of William Jennings Bryan were eventually defeated. Not by President McKinley (or his political advisor Mark Hanna, whom Karl Rove greatly admires), but by the discovery of gold in the Klondike.

  • A Short Squeeze at Hansen Natural
    , January 17th, 2006 at 7:13 am

    Last week, I discussed Hansen Natural (HANS). The stock is up over 50-fold in three years. Nearly one out of every four shares is currently being shorted. That’s astounding. A whole bunch of those shorts got “squeezed” last week.
    Reuters profiles the company:

    The stock of the No. 2 energy drink maker behind Austria-based Red Bull GmbH emerged as the clear winner on the Standard & Poor’s 1500 index, rising 333 percent in 2005 with an average daily share volume of more than 1 million shares.
    “There’s no exact science or answer as to why we have been successful,” the South-African born Sacks told Reuters. “What we did to make ourselves different was we created an aggressive personality and in-your-face image for the brand.”

  • Privacy Advocates Are Concerned with Search Engine Maps
    , January 17th, 2006 at 6:04 am

    Here’s another article about the map technology from search engines. Privacy advocates aren’t happy with the level of detail that users can see.
    Google Earth is simply jaw-dropping. If you haven’t done so, I encourage you to download it. I was able to zoom in on the infields of several major league baseball stadiums.

  • The Scooba Robot
    , January 17th, 2006 at 5:39 am

    iRobot’s (IRBT) vacuuming robot was a hit. Now they’re pinning their hopes on Scooba—a floor-cleaning robot:

    Burlington, Mass.-based iRobot is hoping to have the kind of success with Scooba that it had with the Roomba. It has sold more than 1.5 million Roombas since the product debuted in 2002.
    “It’s going to be a fun year for us,” said iRobot Chief Executive Colin Angle, “as we start to get another product under our belt launched and continue on our quest to make robots a mainstream new industry.”
    To get the word out about its household robots, iRobot is funding a multimillion-dollar advertising campaign called “I Love Robots.” The campaign includes TV ads featuring real customers talking about why they love their Roombas and showing the robots at work in their homes.

    Pretty cool. I’ll hold off getting one, though. My luck, I’d get some insane HAL-wannabe robot that would turn against me. Just to be safe, I’ll wait till all the kinks are worked out. You never know.

  • Apple is Now Bigger than Dell
    , January 17th, 2006 at 5:22 am

    Recently, I ordered a new laptop from Dell (DELL). A few days later, a small brown box arrived. I thought “man, these laptops are getting tiny.” Then I was terrified that there might be “some assembly required.” Let’s just say that outside of gin and tonic, I don’t assemble well.
    Turns out, it was a free Dell iPod which I got as part of the order. The laptop came the next day.
    Just to show you the power of the Apple (AAPL) brand, I don’t even know what the Dell electronic musical device machine is called. Me? I’m calling it my Dell iPod. I think “iPod” is now the generic name as well as a brand name. As the proud owner of many shares of Dell, I have to concede that this thing is the hydrox of the industry.
    Well yesterday, the UPS (UPS) guy shows up and gives me another small brown box. Lucky day! I rip it open (like I’m 12) and Ameritrade (AMTD) sent me a video iPod!
    How cool is that? In no time, I went from being an iPodless American to having two iPods. Both un-frickin-expected!! I’m now a multiPod! A wePod?
    I have a non-iPod iPod and a real iPod iPod.
    Make that, a real VIDEO iPod.
    (Update: Um…anyone how to work a video iPod? As a long-standing principle, I refuse to read directions. Ah..I’ll figure it out.)
    I’m not sure why Ameritrade sent it to me. Something about a deposit. I use the service, but truthfully, I think their interface can be a bit confusing. (Yeah, I know…directions.)
    Coincidentally, last week Apple Computer passed Dell in market value. Steve Jobs enjoyed a nice little in-your-face moment:

    In 1997, shortly after Mr. Jobs returned to Apple, the company he helped start in 1976, Dell’s founder and chairman, Michael S. Dell, was asked at a technology conference what might be done to fix Apple, then deeply troubled financially.
    “What would I do?” Mr. Dell said to an audience of several thousand information technology managers. “I’d shut it down and give the money back to the shareholders.”
    On Friday, apparently savoring the moment, Mr. Jobs sent a brief e-mail message to Apple employees, which read: “Team, it turned out that Michael Dell wasn’t perfect at predicting the future. Based on today’s stock market close, Apple is worth more than Dell. Stocks go up and down, and things may be different tomorrow, but I thought it was worth a moment of reflection today. Steve.”

    Michael Dell shouldn’t feel too bad. According to Forbes, his personal fortune stands at $16 billion.

  • Earnings Calendar
    , January 16th, 2006 at 10:59 pm

    Fourth-quarter earnings season is about to start. Here’s a calendar for our stocks on the Buy List. Not all of the companies have said when they’re going to report, but I’ll update this as more info becomes available.

    Ticker Company Date EPS Estimate
    HDI Harley-Davidson 19-Jan 0.81
    UNH UnitedHealth Group 19-Jan 0.66
    GDW Golden West Financial 24-Jan 1.24
    FIC Fair Isaac 25-Jan 0.50
    VAR Varian Medical Systems 25-Jan 0.33
    DHR Danaher 26-Jan 0.81
    RESP Respironics 26-Jan 0.36
    FISV Fiserv 30-Jan 0.56
    SYY Sysco 30-Jan 0.35
    SEIC SEI Investments 1-Feb 0.47
    BRO Brown & Brown 13-Feb 0.25
    DELL Dell 16-Feb 0.41
    DCI Donaldson 28-Feb 0.33
    BBBY Bed Bath & Beyond 5-Apr 0.65
    AFL AFLAC TBA 0.63
    BMET Biomet TBA 0.43
    EXPD Expeditors International TBA 0.50
    FDS FactSet Research Systems TBA 0.38
    HD Home Depot TBA 0.56
    MDT Medtronic TBA 0.55