Sherri's Premium Picks

07/23/2004 12:00 am EST

Focus:

Sherri Parker

Co-Editor, UnDiscovered Stocks

Sherri Parker offers two premium, high-end services designed for a limited group of sophisticated investors.  UnDiscovered Stock Options and Elite Small Cap Trader. Here, we get a rare glimpse into the recent advice from these proprietary services.

"The companies in the S&P Small-Cap 600 Index have far outperformed their cousins in the blue-chip S&P 500. They’ve racked up a 12-month price gain of 28% vs. just 13% for the S&P 500. And the reason for this out performance is also very clear to see. It’s because the small and mid sized stocks have much better sales and profit growth prospects. Small caps especially are a great place to invest if you’re looking to catch an undiscovered rising star with top-notch profit growth.

"Our newest position for our Elite Micro Cap Stocks readers is DJ Orthopedics (DJO NYSE). The firm has a terrific story and its fundamentals have gotten better and better. New products give DJ Orthopedics a leg up on the competition. DJ Orthopedics is a leading orthopedic sports medicine firm specializing in the design and manufacture of medical braces and related products that help repair, regenerate, and rehabilitate soft tissue and bone injuries. If you're having knee trouble, you can have the key joint repaired and get back on the tennis court or golf course in just a few weeks. It's modern medical technology at its finest.  DJ Orthopedics is also enjoying a sharp acceleration in profits. Profits surged 156% higher in the first quarter of 2004 to 23 cents per share, up from 9 cents a share in the year-ago period. And we expect there's a lot more where that came from over the remainder of this year. Full-year sales are expected to surge 32% higher in 2004, to $261 million, while earnings per share should soar 62% to $1.04 a share.

"You would expect a stock with such red-hot growth to be expensive, but DJ Orthopedics is actually a bargain at its current price, at just 22.6 times this year's expected earnings per share. The stock also changes hands at just over 2 times sales - compared with an average of nearly 21 times sales for other stocks in this sector. That tells us that DJ Orthopedics is still an undiscovered diamond in the rough. As more investors uncover this terrific growth story, you can bet they will bid these shares much higher. Finally, there's one more catalyst that should send DJ Orthopedics shares skyward. Standard & Poor's recently announced that the company would be added to the widely-followed S&P SmallCap 600 Index. The date is yet to be announced, but when that day comes you can bet that institutional investors who track the major stock indexes will be scrambling to add these shares to their portfolios.

"ArthroCare Corp. (ARTC NASDAQ), featured in our UnDisdovered Stock Options advisory, is a fast growing medical device maker with terrific growth prospects. Plus, its shares look to be on the cusp of a major break-out to the upside. ArthroCare specializes in devices used in minimally invasive surgical techniques but where a very high degree of delicacy is required. The company pioneered a procedure known as 'Coblation' used mainly in arthroscopy (a form of joint surgery). Its equipment allows doctors to perform very exacting surgical procedures in very tight places without damaging any nearby tissue. The company’s fastest-growing product areas are in spinal, ear, nose, and throat surgery.

"Arthrocare has increased its sales each and every year since 1998. Last year, sales jumped a whopping 34% to nearly $119 million. After dipping slightly into the red in 2002, ArthroCare’s operating margin, operating income as a percent of sales, rebounded nicely last year. And that strong performance influenced the company’s bottom line, too as ArthroCare’s fully diluted earnings per share jumped 133% last quarter alone to seven cents a share, up from just three cents in the year-ago first quarter. And profits are expected to rise 68% for full-year 2004. P rofits are expected to surge another 46% higher next year. Above-average profit growth is a terrific sign of a stock that should continue to outperform. That’s why I recommend you add September ArthroCare call options to your UnDiscovered Stock Options portfolio. And as more investors flock to ArthroCare, I expect the September call options to soar much higher in price."

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