This Tiny Company Churns Out Oversized Profits
The pain in her legs was so unbearable that she couldn’t muster one more step… let alone the dozen or so needed to make it to her sorority just down the street. She had to call a friend to pick her up.
Nicole Labonte didn’t know what was happening. But this was the first sign that something was clearly wrong, and she needed to see a doctor immediately. A trip to the health center revealed that her blood pressure was astronomically high. After several tests, they finally diagnosed Nicole with a rare vascular disease called Takayasu arteritis, which causes inflammation of the largest blood vessel in the body, the aorta, and its branches.
Vascular diseases, like the one Nicole was diagnosed with, can be difficult to detect. Diseases can appear anywhere in the body in many different forms. In fact, John Hopkins Medical Center estimates that 78 million Americans have the most common form… high blood pressure.
No one is exempt from some form of vascular disease. And while some risk factors are out of our control, such as family medical history and age, there are some risk factors that we can control such as smoking, obesity, stress and high cholesterol. But a society that’s not only aging but is seeing a rise in obesity and diabetes is also seeing a rise in vascular diseases, and more specifically peripheral artery disease (PAD).
Based on industry statistics, PAD affects more than 200 million folks around the world. The disease encompasses a number of conditions in which the arteries or veins that carry blood to or from the legs, arms, or organs other than the heart become narrowed, obstructed, weakened, or otherwise compromised. Many cases go undetected, sometimes leading to life-threatening events including stroke, ruptured aneurysm, pulmonary embolism or death.
The global market for medical devices dedicated to peripheral vascular diseases exceeds $5 billion. And that’s only anticipated to grow due to doctors becoming more familiar with the disease along with an aging population and an increase in obesity and diabetes.
According to the U.S. Census Bureau, more than 20% of the population will be 65 years or older by as soon as 2040, compared with roughly 12% at the turn of the century. You can see the aging population in the chart below over the decades:
Looking at the obesity problem, the Centers for Disease Control and Prevention (CDC) found that one in five adolescents (ages 12-19) are obese, while more than a third (36.5%) of U.S. adults are obese. On the diabetes front, the CDC estimates that more than 30 million people — or 9.4% of the U.S. population — had diabetes in 2015 (the latest data available). They also found that percentage of adults with diabetes increased with age, reaching a high of 25.2% among those aged 65 years or older.
An aging population and growing numbers in obesity and diabetes mean a surge in vascular diseases, since all three are major risk factors. This month, I’m recommending a little-known company that’s a pioneer in this industry, and peripheral vascular diseases in particular.
A Micro-Cap Stock With Oversized Profits
This month’s recommendation is unique in a variety of ways, and not just in its business or fundamentals. It’s a company that’s not of typical size for the Top Stock Advisor portfolio. It has a market capitalization of only $690 million (the average market cap of our current holdings is north of $105 billion).
A company this size can be easily overlooked. Finding it took a bottom-up approach; I screened for a specific set of fundamentals, regardless of industry, and then zoomed out to see where it fits in the bigger picture. Sometimes this approach can be much more tedious, as you might find a company selling at bargain prices, but when you look at its industry or market you can see why it’s trading for so cheap… sending you back to square one.
With the S&P 500 trading at lofty valuations, I wanted to see if there were any bargains out there. More than that, I wanted to find companies that met certain criteria.
I was looking for companies that have good profit margins (over 15%), growing cash flow, solid returns on equity (ROE), returns on assets (ROA), and return on invested capital (ROIC). Companies that are shareholder friendly, have a cash ratio above 1.5 (which tells me if the company has enough cash to cover current liabilities), and with cash operating margins in excess of 20%.
Unsurprisingly, my screen returned only a few dozen stocks. These were then weeded out by volume, stock price, and market capitalization. After that, it was time to roll up the sleeves and begin diving into SEC filings, industry and market reports, and financial statements.
One company that continued to make the grade was this month’s pick.
Not only did it meet all the aforementioned requirements, but when stacked up next to its peers it was tops in its class in nearly every important financial metric. Plus, it’s in a stable and growing industry, and has market-leading products. Plus, despite being a small-cap company, its beta is only 0.55, meaning it has about half the volatility of the market as a whole.
The Best Stocks On The Market
Sure, the process I went through might be a bit extreme, but that’s what it takes to find value in today’s market. And that’s exactly the type of work I put in every week to find the best picks for my Top Stock Advisor readers.
So you’ll understand that I can’t reveal this stock’s name here — it also wouldn’t be fair to my premium subscribers — but there’s a way you can access it today.
A few months ago, my research team and I released our newest report: The Top 10 Stocks For 2018. While nothing is certain, we’re convinced — based on our cumulative decades of experience and expertise — that these stocks are your best bet for building wealth in 2018 and beyond.
You’ll find all the details of every one of our 10 picks in this brand-new report. And we’d like to share it, with absolutely no risk to you. All we ask is that you try a 90-day, no obligation trial membership to Top Stock Advisor, including access to the pick mentioned above, just to see if you like it. Even if you don’t, you can keep the report as a free gift.