BEATing the Competition

06/24/2013 6:30 am EST

Focus: STOCKS

Marc Gerstein

Editor, Forbes Low-Priced Stock Report

Combining high-tech with demographic trends proves a winner for this company, says Marc Gerstein of Forbes Low-Priced Stock Report.

Demographic investment ideas can be incredibly frustrating, a prime example being many health care-related situations.

The overall idea is that the aging of the population results in booming demand for things that tend to be more readily used by the elderly. The trends are in place. But the transition from slam-dunk demand to successful equity investment can be treacherous. (The Internet, for instance, seems to have turned out much bigger than we expected back in 2000, yet most Internet investments fizzled.)

In medical supplies, the path from great idea to stock gain is fraught with two major challenges. One, producers need to be paid properly, which requires reasonable insurance reimbursement, typically a dicey issue. Two, getting providers to choose the products on which you're focused, as opposed to alternatives.

CardioNet (BEAT), which makes cardiac monitoring devices, faces all the usual reimbursement issues. The reimbursement situation has improved, but is still not as lucrative as BEAT would like.

Product adoption is the more pertinent issue for us. BEAT's main offering is a wearable device it refers to as MCOT (Mobile Cardiac Outpatient Telemetry). It monitors the patient's heartbeat on a 24/7 basis and continuously wirelessly transmits the data to BEAT's CardioNet monitoring center.

There, cardiac monitoring specialists analyze results and report to the prescribing physician. They respond quickly should any urgent event be identified. The idea, here, is to detect troublesome aberrations as quickly as possible, which is important. The speed of response can make a big difference, perhaps even between life or death.

This isn't the only kind of remote cardiac measurement protocol. Widely used Holter monitors measure and record for discrete 24- to 48-hour periods, with data stored by the device then sent to the physician for analysis. Event monitors work for shorter periods in response to a triggering by the patient.

Arguably, MCOT is best. Continuous wireless transmission of data has obvious speed benefits. Another plus is that it's always on and can be worn for prolonged periods. Holter monitors are useful only if aberrations occur during the defined sample period. Event monitors can't do anything unless a patient can properly recognize a symptom (which is not always readily apparent) and activate the device.

But the reality of business is that many a company with a "better" product floundered indefinitely as it struggles to convince the world that its offering really is the best.

BEAT isn't playing that game. It offers a full range of devices (MCOT, Holter, and event monitoring). That makes it a lot easier for physicians to say "yes" and allows BEAT to be more patient as the cardiology community comes around to appreciating what MCOT does.

I'm also impressed with the strategic thought behind some recent acquisitions. BEAT got into the business of providing cardiac monitoring of pharmaceutical research subjects. This is an example of the company's ongoing effort into a more extended range of markets that require outpatient or ambulatory monitoring and management. In fact, later this year the company will adopt a new broader name: BioTelemetry (the ticker will remain as is).

Bottom-line trends to date have not been impressive. But after prolonged sluggishness, business has picked up in the last couple of quarters.

Given that, the company's very sensible extension of its business, its 88 cents per share in cash (no debt), and its low by historical standards valuation metrics, we can afford to give this situation time to play out. CardioNet is a Buy.

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