In today’s environment, our focus is on finding good companies and unique investing opportunities. We added one such company to the portfolio this week. The company has enviable revenue growth, strong operating margins, great returns on capital, growing cash flows and a P/E 20% below the broader market. The company also happens to have a large short interest. It is a small cap biotech involved in genetic sequencing, with both off the shelf and tailored molecular diagnostics offerings.
One knock on the company is that her industry is experiencing massive technology advancements. Doubters say this company must endure litigation to protect their intellectual property. Bears also say they must innovate to keep their competitive advantage or they will be eaten by smaller, more focused firms or larger, more resourced firms. What if someone comes along with some new disruptive advancement?
Well, these seem like all good problems to have as well. At the very least the issues stated above are omnipresent in any profitable, competitive economy. A competitive advantage in one of the fastest growing, most innovative industries in the economy is a good thing. Growing cash flow to aid continued innovation or for purchase of new technology is a good thing. A fortress balance sheet that allows you to leverage your success and pass higher returns to equity holders is also a potential tailwind for the firm.
The company has the ability to customize molecular diagnostics and this may be a unique advantage. It can place itself in the product development chain of some larger industry peers. Recent news indicates at least one such company willing to partner with them in this capacity. To me, this shows the company provides real value. So, in spite of reports that recent success is merely the result of an increase in gene testing resulting from publicity surrounding Angelina Jolie’s double mastectomy, we believe the company presents our clients with a very positive investment opportunity.
Global Opportunities:
Initial Purchase of Myriad Genetics–MYGN
As always, please feel free to contact me with any questions or concerns.
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For information on Alhambra Investment Partners’ money management services and global portfolio approach, Douglas R. Terry, CFA is reachable at: dterry@alhambrapartners.com
Disclaimer: The information, data, analyses and opinions contained herein (1) include the confidential and proprietary information of Alhambra Investment Partners LLC, do not constitute investment advice offered by Alhambra, are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and are not warranted to be correct, complete or accurate. Except as otherwise required by law, Alhambra shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, this information, data, analyses or opinions or their use.
