Newsletter Watch: Medical plays
Jim Oberweis, Jr. -- through both his Oberweis Funds and his The Oberweis Report financial newsletter -- is a long-standing specialist in small cap stocks.
Well known for his Oberweis Microcap Fund, which recently re-opened to new investors, the advisor has also stepped into the global investing arena – last year launching the Oberweis China Opportunity and just recently unveiling the Oberweis International Opportunities Fund.
Whether domestic or global, his stocks are chosen based on one enduring strategy, which focuses exclusively on seeking high growth at a reasonable valuation. Indeed, he explains, “Our investment approach, which we call the Octagon Strategy, hasn’t changed one iota in 20 years.”
In addition to several technical and financial criteria, the advisor has three basic fundamental requirements for all of the stocks he considers. First, Oberweis notes, companies must be growing revenues at 30% or faster—“These are turbo-charged companies,” he says.” In addition, they must be prosperous and growing earnings at 30% or better. Finally, he adds, they must be cheap in relation to their rate of growth.
Oberweis points out that the stock’s p/e can’t be greater than half the rate of growth. As a result, he observes, a company growing at 50% a year, has to have a p/e multiple of 25 or less.
In his latest The Oberweis Report, he uncovers a trio of intriguing medical plays that are paving new ground in developing markets -- robotic surgery, molecular prediction, and dermatology. All three stocks, he notes, are only appropriate for risk-oriented investors.
Accuray Inc. (Nasdaq: ARAY), he explains, has developed the first intelligent robotic radiosurgery system, called the CyberKnife system, which is intended to treat solid tumors anywhere in the body as an alternative to traditional surgery.
He says, “The CyberKnife system uses image-guidance technology to continuously track a tumor’s location and transmit any position corrections to the robotic arm prior to delivery of each dose of radiation. A radiation treatment device uses microwaves to accelerate electrons to create high-energy X-ray beams to destroy the targeted tumor.”
In the latest reported third quarter, Oberweis points out that sales increased about 129% to $37.3 million from a year earlier. It reported operating income (excluding stock compensation expense of $2.9 million and $2.0 million, respectively) of $1.1 million in the latest reported third quarter vs. an operating loss of $5.5 million. Oberweis’ clients own 216,000 shares.
His second idea is Simulations Plus (AMEX: SLP), a software company focused on products for use in pharmaceutical research and education as well as products for use by people with disabilities.
Oberweis explains, “Their most recent rapid growth is coming from its ADMET Predictor, which consists of a statistical library that predicts various properties of chemical compounds from just their molecular structures.”
The product, he notes, allows a chemist, for example, to simply draw a molecule diagram and get estimates of these properties, then sift through more quickly and eliminate those compounds with poor characteristics before spending the money and taking the time to actually make them and run the experiments to identify these weaknesses.
He states, “In the company’s latest reported second quarter, sales increased 70% to $2.5 million from $1.5 million in the second quarter of last year. It reported earnings per share of $.07 in the latest reported second quarter versus $.03 in the same quarter of last year. Clients of Oberweis Asset Management own approximately 200,000 shares.”
The third of this Oberweis trio is Obagi Medical Products (Nasadaq: OMPI), which develops and commercializes skin health products for the dermatology, plastic surgery, and related aesthetic markets.
The advisor explains, “Using its Penetrating Therapeutics(TM) technologies, Obagi Medical’s products are designed to improve penetration of agents across the skin barrier for common and visible skin conditions in adult skin including chloasma, melasma, senile lentigines, acne vulgaris and sun damage.”
He observes, “In the company’s latest reported first quarter, sales increased approximately 34% to $23.0 million from $17.2 million in the first quarter of last year. Obagi reported earnings per share of $0.13 in the latest reported first quarter versus $0.09 in the same quarter of last year. Clients of Oberweis Asset Management own approximately 576,600 shares.”
Steven Halpern is the founder of “TheStockAdvisors.com - Steven Halpern's Guide to Financial Newsletters,” the first website to feature a daily overview of the investment newsletter world.
