Dexcom, Diabetes and Dollars

09/12/2016 7:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

The story behind this featured stock is diabetes, which is huge. The National Center for Health Statistics says that 12.6% of all US adults have diabetes, making it the 7th leading cause of death, explains growth stock expert Mike Cintolo, editor Cabot Top Ten Trader.

Dexcom (DXCM) is the developer of a monitor for blood sugar levels that uses a disposable sensor, a transmitter and a smartphone to give patients continuous, real-time information about their glucose levels, including alerts when levels get out of whack.

The Dexcom G5 Mobile Continuous Glocose Monitoring (CGM) System is the latest iteration of the company’s technology, and it has achieved a significant milestone.

While Dexcom’s CGM monitors have long been approved by the FDA as an adjunct to traditional needle-stick monitoring, in late August, an FDA panel approved the G5 as a standalone replacement for needle sticks.

This change will open the door for Medicare reimbursements, which could mean a major increase in revenue. The announcement caused a surge in investor interest in the company, and gave its stock a boost that lasted until August 3, when a good-not- great quarterly report took the wind out of its sails.

This looks like a temporary situation, however, as the company’s superior technology (and the size of the target patient pool) make a strong argument for longer-term success.

Technically, DXCM has been a long-term success story since late 2008, with three major corrections along the way. The third correction ran from September 2015 to February 2016, and dropped DXCM from $103 to $48.

The stock recovered quickly, catching fire after the FDA approval, then hit a wall on August 3 when the “bad” Q2 report was released.

But DXCM has held up remarkably well, giving back just a few percent from its high and trading sideways in an incredibly tight trading range.

We think that DXCM is likely under quiet accumulation here, and a buy around 91 represents a good risk/reward balance. Use a stop just below the 50-day line at $83.

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By Mike Cintolo, Editor of Cabot Top Ten Trader

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