There are analysts on both sides of global markets at the moment. One on side of the fence, we have those suggesting that the latest market crash is merely a correction as part of a long-term bull run, and that – as a result – it offers opportunities to get in at a discounted rate. On the other, we have suggestions that a weak economy in the US cannot withstand the proposed September interest rate hike, and further, that the crash in China that preceded the global crash came as a result of pre-emptive reduction in exposure to a Yellen hike. Regardless of which side of the fence you are on, there is one thing we can be a little more certain about – that some industries are less exposed than others. We have mentioned a couple of times already that the biotech space is one of those industries – with the demand for its products being relatively inelastic when compared to other sectors such as electronics or energy. With this in mind, here is one example of potential opportunity to get in at a discount and ride out whatever is left of this bull market on a relatively insulated exposure.
Introducing, Globus Medical, Inc. (NYSE:GMED). Globus lost nearly 18% of its market capitalization (amounting to close to $375 million) during Monday and Tuesday, and is still trading about 16% off 2015 highs – around levels that put it in line with its valuation from April or May this year. However, despite this decline, the company’s fundamentals look to be both strong and improving. On July 30, Globus reported its latest quarterly, Highlighting just short of $25 million profit on $134 million revenues – and an EPS of $.25. Based on these results, the company expects to post 2015 annual revenues of $524 million and an EPS $1.04.
So what does the company do? In short, it makes replacement robotic skeletal parts – with a particular focus on the spine. It currently has just shy of 100 unique and patented products on the market, with five of these gaining approval and reaching the market in the second quarter of this year alone. Further, there are two more products undergoing clinical trials – TRIUMPH and ACADIA – targeted at year-end completion.
So what are the downsides here? Well, the company reported in its latest earnings call that internationally it has had a pretty tough year. As yet, we’ve not seen the numbers, but they are reportedly showing marginal profitability. However, currency impacts are putting a lot of pressure on margins. If the dollar continues to strengthen (something that could well happen if Janet Yellen raises rates in September) it may be enough to turn outside US operations from black to red.
Growth going forward is expected to be rooted in rapid expansion of products to market – with this strategy being a key part of the company’s ability to maintain profitability. Primarily, this is due to its products being one-time solutions for end users. In other words, in order to sell more products, the company has to find different solutions for different users.
Looking at things from a technical perspective, and one of the few positives from the latest decline other than allowing us to get in at a discount, we have some well defined entry and exit parameters. For those looking long-term, an entry at current rates would likely be a hold until we at least gauge the implications of Fed actions before the end of the year. However, for a short to medium-term entry, current levels look attractive towards a well-defined target of aforementioned 2015 highs – just ahead of $29.
So to draw things to a close, Globus looks to present an interesting opportunity for the more optimistic investor looking to get in on what might be a short-term correction as part of a larger bull run. It also offers those unsure as to the current market conditions a chance of picking up a biotech exposure that is (to some extent, at least) insulated from wider global economic conditions. Keep in mind that picking up an allocation to any stock is risky at the moment – there’s so much uncertainty around that both fundamental and technical perspectives can quickly be proved wrong. Nobody could be blamed for being pretty much all in cash at the moment. However, for those that are not, this one’s well worth a look.