Up 32% This Year, This Health Stock Is Set To Really Take Off

Investors in a certain global leader in medical equipment have been seen mildly erratic behavior (to put it nicely) from the stock over the better part of a decade.

Shares rose from $40 in 2004 to highs of $75 in 2007 before sinking to $30 in 2009 and rebounding to $50 in 2011. Since then, the stock has steadily risen to its current level near $75.



But while the stock was spinning its wheels over that nine-year period, the company was growing at a good clip. Annual revenue climbed a cumulative 29% between 2009 and 2012, to $8.7 billion. Net earnings jumped 17% in that time, to $1.3 billion.

Last month, Stryker (NYSE: SYK) delivered rather uneven third-quarter numbers: Revenue rose 4.8% from a year ago, to $2.2 billion, but earnings fell more than 70%.

The revenue boost came from a revival in Stryker's largest division, specifically in orthopedic implants used in hip and knee joint replacements. This division grew 9% in the third quarter, one of its strongest performances in some time. Most of the dip in earnings can be attributed to litigation related to a recall of Stryker's ABG II and Rejuvenate hip implants (ranging from $700 million to $1.1 billion) last year. Excluding that lump sum, earnings rose 1%.

Except for a few rough patches, Stryker's been riding a wave of momentum good enough for a 32% year to date gain -- and it hasn't yet begun to crest. It's all coming together for this $25 billion provider of surgical tools and neurotechnology, despite ongoing criticism about a series of expensive acquisitions (the other component of Stryker's third-quarter dip in earnings).

Stryker's most recent purchase: a $1.65 billion deal for MAKO Surgical (Nasdaq: MAKO), a pioneer in robot-assisted orthopedic surgery with its RIO systems and Restoris implants. Considered a long-term bet on the robotics industry, the acquisition gives Stryker new product lines that it can market through its broad distribution network. The deal may position Stryker to compete with Intuitive Surgical (Nasdaq: ISRG), famed for its da Vinci surgical robot.

Before its purchase of MAKO, Stryker acquired Boston Scientific's (NYSE: BSX) neurovascular unit for $1.5 billion, which provided inroads into a thriving market in devices to treat strokes. It also gobbled up orthobiologic and biosurgery products maker Orthovita for $316 million, and China-based Trauson Holdings, a competitor of Stryker's spine segment, for $685 million to build its business overseas.

So Stryker has been busy in recent years shoring up various industry positions, adding to its product lines and building a presence overseas.

The strategy appears to be paying off: Analysts expect earnings growth of 8.5% next year and for the next five years as well.

Risks to Consider: Stryker can ill afford any more product recalls, which could damage its reputation beyond repair and scare away customers and investors. The company also faces stiff competition from Smith & Nephew (NYSE: SNN) and Johnson & Johnson (NYSE: JNJ) in an industry challenged by falling prices.

Actions to Take --> Everything about this stock screams "long term." An aging population will help drive the need for knee and hip replacements in the not-too-distant future. Stryker's string of acquisitions is set to begin paying off; the question is, how soon? At about $75 a share, STk is expected to rise single digits in 2014.

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With the indices relatively unchanged, I hate to read too much into things.

The Quack ended off its best levels but did end in the black. This was enough to keep it at multi-year highs.

The Ps tried to rally but ended down .13%. This action has them .13% away from all-time highs.

What the Ps lost, the Rusty gained. And, this is enough to keep it at all-time highs.

Again, I don't want to read too much into a flat day. As you would imagine, most stocks were mixed.

There were a few standouts though:

Biotech, which recently looked pretty sick just recently, closed at all-time highs. Drugs overall and Health Services, in spite of all the news, also closed at all-time highs. See my recent column about not confusing the issue with facts.

Selected Regional Banks accelerated to all-time highs.

The Transports also closed at all-time highs.

Not all was rosy though. Metals & Mining continue to roll over. And, Real Estate still looks anemic.

With a flat day, not much changes. I'm still not seeing a lot of new meaningful longs just yet. This is perfectly normal for a methodology that requires a pullback. I am seeing a few shorts but not enough to cause alarm. Focus mostly on managing your existing positions. Take partial profits as offered and trail your stops higher. Continue to avoid getting too bearish as long as the market remains at or near new highs. If you really really like a short side setup, then take it-we actually have one that we are going after today. Again though, just don't get too aggressive as long as the market is at new highs. In an ideal world, the market continues higher and we avoid a new position altogether. Then, we look to add on the long side. And, if it does trigger and the market goes straight up, we'll get stopped. This won't be the first losing trade and it certainly won't be the last. Nothing ventured, nothing gained. Learning how to shrug your shoulders and shout next! -focusing on the next potential trade--takes a while. This may be hard to believe if you are just starting out but it can be done Grasshopper.

Dunkin' Brands (Nasdaq: DNKN) has far outpaced the performance of the S&P 500 Index year to date, gaining nearly 48% compared with the broader index's 26% gain.

Even more exciting is that if the shares can crack round-number resistance at $50, they are likely to challenge $60 in fairly short order. Since there is a well-defined stop-loss level at the major uptrend line, which intersects the chart just under $46, the reward-to-risk ratio is roughly 2.5 to 1, which is highly attractive.

Dunkin' Donuts, which has been around since 1950, is an American favorite. Through aggressive expansion, it is capturing an even larger domestic and international following. (My colleague David Goodboy is also a longtime fan of the company, as he wrote recently.)

In its third quarter, the company, which also owns the Baskin-Robbins brand, added 222 new stores worldwide, 81 of which were U.S.-based Dunkin' Donuts locations. There are now 7,500 Dunkin' Donuts restaurants in the U.S.

CEO Nigel Travis announced his goals of opening at least 15,000 Dunkin' Donuts restaurants in the U.S., including 3,000 east of the Mississippi and 5,000 in Western states. That's double the size of the current chain. At present, Dunkin' Donuts is heavily situated in the eastern United States, so there is a lot of virgin territory that can be easily conquered.

In the third quarter, the first Dunkin' Donuts locations in Colorado opened. The company also signed development agreements in Southern California, bringing the total number of planned outlets there to 70. During this same period, the company's U.S.-based same-store sales increased 4.2%, revenue increased 8.5% from a year ago, and earnings increased at a double-digit clip (10.8%).

Since the stores are almost entirely operated by franchisees, continued expansion should mean an influx of franchise fees and royalty income, along with minimal operating expenses. That's a formula for strong future profit growth.

The chart is strong, to say the least. Since its July 2011 IPO near $19, the stock has been on a highly bullish run and shows no sign of slowing down.

?I think we?re in the middle of the game, maybe the fourth or fifth inning. I really think this thing has another five years to go. It?s going to take that long before people become confident enough and they start becoming confident enough and blowing themselves up again,? said John Paulson of Wells Capital Management.


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I was amazed to see the Dow Average open up only 60 points this morning, and oil to fall a mere $1.50, given the enormous long term implications of a real nuclear deal with Iran. Over the decades, I have noticed that Wall Street isn?t very good at analyzing international political matters and the implications for their own markets. This appears to be one of those cases.

The news over the weekend about a freeze on Iran?s nuclear enrichment program in exchange for international inspections and the unfreezing of $4 billion of their assets is unbelievably positive for all asset classes, except energy. It came much sooner than expected. It proves that the administration?s preference for economic sanctions over military action has been wildly successful.

The US is now in a tremendously powerful negotiating position. If Iran dumps their nuclear program to our satisfaction it can get the carrot. It will rejoin the world economy, unfreeze the rest of its assets, and recover $100 billion a year in trade. Its oil exports (USO) can recover from 750,000 barrels a day back to the pre crisis level of 3 million barrels. If it doesn?t then it gets the stick again in six months, resuming their economic freefall.

The geopolitical implications for the U.S. are enormous. Iran is the last major rogue state hostile to the U.S. in the Middle East, and it is teetering. The final domino of the Arab spring falls squarely at the gates of Tehran. A friendly, or at least a non-hostile Iran, means we really don?t care what happens in Syria.

Remember that the first real revolution in the region was Iran?s Green Revolution in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards. The true death toll will never be known, but is thought to be in the thousands. The antigovernment sentiments that provided the spark never went away and they continue to percolate just under the surface.

At the end of the day, the majority of the Persian population wants to join the tide of globalization. They want to buy iPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all. Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have abjectly failed to cater to these desires.

If Iran doesn?t do a deal on nukes soon, it?s economy with sink deeper into the morass in which they currently find themselves. The Iranian ?street? will figure out that if they spill enough of their own blood that regime change is possible and the revolution there will reignite. The Obama administration is now pulling out all the stops to accelerate the process.

The oil embargo former Secretary of State, Hillary Clinton, organized is steadily tightening the noose, with heating oil and gasoline becoming hard to obtain. Yes, Russia and China are doing what they can to slow the process, but conducting international trade through the back door is expensive, and prices are rocketing. The unemployment rate is 40%. The Iranian Rial has collapsed by 50%. Iranian banks were kicked out of the SWIFT international settlements system, a deathblow to their trade.

Let?s see how docile these people remain when the air conditioning quits running this summer because of power shortages. Iran is a rotten piece of fruit ready to fall of its own accord and go splat. The US is doing everything she can to shake the tree. No military action of any kind is required on America?s part. No shot has been fired. That?s a big deal when the shots cost $10,000 apiece.

The geopolitical payoff of such an event for the U.S. would be almost incalculable. A successful revolution will almost certainly produce a secular, pro-Western regime whose first priority will be to rejoin the international community and use its oil wealth to rebuild an economy now in tatters.

Oil will lose its risk premium, now believed by the oil industry to be $30 a barrel. A looming supply could cause prices to drop to as low as $30 a barrel. This would amount to a gigantic $1.66 trillion tax cut for not just the U.S., but the entire global economy as well (87 million barrels a day X 365 days a year X $100 dollars a barrel X 50%). Almost all funding of terrorist organizations will immediately dry up. I might point out here that this has always been the oil industry?s worst nightmare. Hezbollah is a short.

At that point, the US will be without enemies, save for North Korea, and even the Hermit Kingdom could change with a new leader in place. A long Pax Americana will settle over the planet.
The implications for the financial markets will be enormous. The U.S. will reap a peace dividend as large, or larger, than the one we enjoyed after the fall of the Soviet Union in 1992. As you may recall, that black swan caused the Dow Average to soar from 2,000 to 10,000 in less than eight years, also partly fueled by the technology boom.

A collapse in oil imports will cause the U.S. dollar (UUP) to rocket. An immediate halving of our defense spending to $400 billion or less and burgeoning new tax revenues would cause the budget deficit to collapse. With the U.S. government gone as a major new borrower, interest rates across the yield curve will fall further.

A peace dividend will also cause U.S. GDP growth to reaccelerate from 2% to 4%. Risk assets of every description will soar to multiples of their current levels, including stocks, junk bonds, commodities, precious metals, and food. The Dow will soar to 30,000 and the S&P 500 (SPY) to 3,500, the Euro collapses to parity, gold rockets to $2,300 an ounce, silver flies to $100 an ounce, copper leaps to $6 a pound, and corn recovers $8 a bushel. The 60-year bull market in bonds ends.

Some 1 million of the armed forces will get dumped on the job market as our manpower requirements shrink to peacetime levels. But a strong economy should be able to soak these well-trained and motivated people right up. We will enter a new Golden Age, not just at home, but for civilization as a whole.

Wait, you ask, what if Iran develops an atomic bomb and holds the U.S. at bay? Don?t worry. There is no Iranian nuclear device. There is no real Iranian nuclear program. The entire concept is an invention of Israeli and American intelligence agencies as a means to put pressure on the regime. According to them, Iran has been within a month or producing a tactical nuclear weapon for the last 30 years.

The head of the miniscule effort they have was assassinated by Israeli intelligence two years ago (a magnetic bomb, placed on a moving car, by a team on a motorcycle, nice!).

If Iran had anything substantial in the works, the Israeli planes would have taken off a long time ago. There is no plan to close the Straits of Hormuz, either. The training exercises in small rubber boats we have seen are done for CNN?s benefit, and comprise no credible threat.

I am a firm believer in the wisdom of markets, and that the marketplace becomes aware of major history changing events well before we mere individual mortals do. The Dow began a 25-year bull market the day after American forces defeated the Japanese in the Battle of Midway in May of 1942, even though the true outcome of that confrontation was kept top secret for years.

If the advent of a new, docile Iran were going to lead to a global multi-decade economic boom and the end of history, how would the stock markets behave now? They would rise virtually every day, led by the technology sector (XLK), industrials (XLI), and the banks (XLF) (C), offering no substantial pullbacks for latecomers to get in.

That is exactly what they have been doing since August. The markets are telling us that a treaty of real substance is a done deal.

This is my 14th consecutive closing Trade Alert, and the 20th including my remaining profitable open positions. I have only six more to go until a break my previous record of 25. It doesn?t get any better than this.

The yen is now in free fall, and the Japanese stock market is going ballistic, as I expected. Both the ProShares Ultra Short Yen double short ETF (YCS) and the Wisdom Tree Japan Hedged Equity ETF (DXJ) have pierced new five-month highs, and loftier levels beckon.

The immediate trigger was a meeting at the Bank of Japan, where the governors voted to maintain their ultra low, 0.1% discount rate. They also reiterated their commitment to growing the money supply by a blistering $600-$700 billion a year, or nearly triple the US monetary easing rate on a per capita GDP basis.

On the same day, we received month old Fed minutes showing a definite lean towards tapering our own quantitative easing. When this eventually does happen, the interest rate differential for dollar/ yen will rise dramatically. Needless to say, this is all terrible news for Japan?s beleaguered currency, as interest rate differentials are the primary drivers of foreign exchange markets.

Given all this, I am going to take profits on my existing short position in the yen through the Currency Shares Japanese Yen Trust (FXY) December, 2013 $101-$104 in-the-money bear put spread. At this mornings shockingly high prices for the spread, we can harvest 83% of the potential profit with one full month still to run to the December 20 expiration.

The outlook for the yen is no so bleak that I want to have plenty of cash to reload on the short side during the slightest recovery. I will move to closer strikes and more distant maturities to maximize your profits. It is now looking like we will soon challenge the 2013 low for the (FXY) of $94.80 and the $72 high for the (YCS).

We have a lot of new readers on board now, as my white-hot performance has become a talking point in the hedge fund community. So for the newbies to familiarize themselves with the basic structural flaws in the yen, please click here http://www.madhedgefundtrader.com/rumblings-in-tokyo-2/, here http://www.madhedgefundtrader.com/ne...r-craters-yen/, and finally here http://www.madhedgefundtrader.com/ne...ushes-the-yen/.

The Chart of the Day is Autozone (AZO). I found the stock by sorting the New High List for frequency in the last month then panned through the chart using the Flipchart feature. I picked the stock for its recent momentum. The stock has a Trend Spotter buy, a Weighted Alpha of 25.00+ and gained 21.50% in the last year. In the last quarter while the S&P 500 Index was up 8.31% the stock was up 10.11%, that's 24.8% better than the market.

It is a specialty retailer of automotive parts and accessories, primarily focusing on do-it-yourself customers. Each of the company's auto parts store carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance items, and accessories. Many of the company's domestic auto parts stores also has a commercial sales program, which provides commercial credit and prompt delivery of parts and other products to local repair garages, dealers and service stations.

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

What can a 90 year-old woman from Nebraska teach us about finding profit opportunities in today's downtrodden mining sector?

Let me tell you a story.

In 1983, Mrs. Rose Blumkin -- nonagenarian proprietor of Nebraska Furniture Mart -- was approached by a local investment fund manager who was interested in putting money into her family's business. After talking with "Mrs. B" and observing her Herculean managerial style about the store, the buyer handed her a check for $55 million. No audit of the books, check of inventory, or verification of property titles. He saw all the qualities he liked in Mrs. B -- and was willing to pay a lot based on a few key observations and a handshake.

That man was Warren Buffett. I've learned a lot by studying his examples, like the one above, and applying them to natural resources investing.

This "be like Warren" message is an important one for my Junior Resource Advisor readers. That's because investing in mining -- and particularly its highest-potential-return sub-sector, exploration and development -- is radically different from conventional investing.

Unlike banks or manufacturers, mineral exploration and development companies have no revenue or cash flow. I've sat in meetings with Wall Street bankers and been asked about the price-to-earnings (P/E) ratios for these firms -- and had to point out that the number is technically infinity, the inevitable result when you divide any P by an E that is zero.

So why should we care about these serial spillers of red ink? Because, when done correctly, exploration can yield profit multiples nearly unmatched across the investment universe. In the mineral business it's possible to spend millions of dollars identifying an in-ground asset through sampling, drilling and compilation of results, and come up with a single, massive product that commands a one-time sale price in the billions.

Many observers believe that the exploration market is dead today. With commodity prices slumping and the valuations of major miners down, who cares about finding new ore deposits?

But my analysis shows something completely different. The market for exploration properties is as active as it's ever been -- if not more frenetic.

Look at the chart below. I've plotted acquisitions of exploration properties during the second quarter of this year. These are deals where one company pays another to purchase the rights to a mineral project.