A Reader Writes "What do You Think? (MDT)"
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

My mailbox has been 'humming' lately. I love getting mail! Always have, ever since I was a kid. Something exciting about snail mail and even email.

Bob K. wrote in, with questions about Medtronics (MDT). My wife does have a few shares (under 100) in an IRA, otherwise, I don't own any of these shares or have any options on them. I have posted Medtronics (MDT) on Stock Picks back on November 13, 2003, (even though I wrote November 13, 2002(!)) when it was trading at $46.39. As I write, MDT is trading at $55.00, up $.21 or 0.38% on the day (the market has moved back into the green for now.).

Back to the letter:

Hi Bob,

I was looking at the top gainers for the NYSE today and Medtronics caught my eye. Everything looks good except the earnings decline and heavy insider trading. The earnings decline is with an increase in sales. Looks as though they bought some market share, but their margin can afford it. What do you think?

Thanks,
Bob

PS You asked if your trading transparency is useful. As a novice in this area I appreciate this information immensely. So often personal financial information of this type is a deep dark secret. There are not many ways a beginner can see how a real-world investor manages his portfolio. This is a valuable educational experience for me. Thanks for the insight!

First of all thank you for writing. You make some excellent points about earnings. I do not think that my approach is the only way to invest. It might not even be the best way. It is just something that I have found helpful. But let's take a look at that latest quarterly report on MDT.

Looking through the headlines, I found something very bullish for the stock price of Medtronic (MDT). On October 11, 2005, the company announced that they were raising guidance for 2006-2008. Whenever a company raises guidance, it is as if they are raising the "thermostat" on valuation. If you are a 'wonk' (excuse me if I am being offensive), I imagine there are people out there feeding numbers into computer terminals all the time trying to figure out the 'appropriate' price of a stock. And if earnings and revenue expectations are raised, well that means the stock price is relatively undervalued and deserves to be pegged at a higher price.

On August 17, 2005, MDT announced 1st quarter 2006 results. Revenue grew 15% to $2.7 billion over the prior year. However, as Medtronic reported:

In the quarter, Medtronic recorded pre-tax, IPR&D charges totaling $363.8 million related to the acquisition of Transneuronix, Inc.; a patent cross-licensing agreement with NeuroPace, Inc.; and the purchase of intellectual property from Gary K. Michelson, M.D. and Karlin Technologies, Inc.

It was this expense that knocked the company from a profit to a loss. What to do with this? If you avoid one-time expenses like this, the results look good. I probably will miss stocks by avoiding quarterly reports like this.

But if everything goes well with Medtronic with this acquisition, etc., then I suspect the stock will come in with better reports in the next and ensuing quarters, and I will have other opportunities to purchase shares. (Since I am not looking for a purchase, I wouldn't bother with it anyway). If I were in the market to make a purchase, I would skip over a stock that has too many footnotes explaining a loss. Even a great company like this!

Anyhow, that's my amateur take on the report! I hope you find this helpful. I sure do appreciate your participation in the blog.

If you have any other questions or comments, please feel free to leave them right on the blog or email me at bobsadviceforstocks@lycos.com.

Bob