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 advisers prior to making any investment decisions based on information on this website.
The market was very weak today; the Dow dropped 250 points or 2.9% to 8200. The Nasdaq wasn't any stronger, dipping 3.67% or nearly 59 points to 1,489, and the S&P was off 3.35% or 29.17 points to 842.62.
However, in the midst of this ongoing bear market, I continue to look for companies which appear to meet most of my own criteria. Yesterday Varian (VAR) made an 8+% move higher on an upbeat forecast for fiscal 2009. Unfortunately, with the market weak today, the stock gave back about a half of its gain closing at $35.62, down $1.34 or (3.63)% on the day. This stock however deserves a second look.
Varian is definitely an 'old favorite' of mine on this blog. I write this because I first wrote about Varian (VAR) on October 20, 2003, more than five years ago! Two years later, on May 11, 2005, I once again wrote up Varian on Stock Picks. I do not currently own any shares or options on this stock.
But I do still like Varian's business and their fundamentals remain impressive.
Regarding its business, as described by the Yahoo "Profile" on Varian (VAR), the company
"...and its subsidiaries provide cancer therapy systems worldwide. Its Oncology Systems segment designs, manufactures, sells, and services hardware and software products to treat cancer with radiation, including linear accelerators, brachytherapy afterloaders, treatment simulation and verification equipment, and accessories, as well as information management, treatment planning, and image processing software."
In a very morbid fashion, cancer is a growth business. There are few people that will get through life without dealing with this disease themselves or with one of their own close family members as I have personally related. In fact as the World Health Organization relates on their website:
"In 2005, 7.6 million people died of cancer out of 58 million deaths worldwide.
More than 70% of all cancer deaths occur in low and middle income countries, where resources available for prevention, diagnosis and treatment of cancer are limited or nonexistent.
Based on projections, cancer deaths will continue to rise with an estimated 9 million people dying from cancer in 2015, and 11.4 million dying in 2030."
Healthcare business, while relatively insulated from economic trends, is also feeling the effects of the economic downturn as this story relates. However, the pain felt in many cyclical businesses is far greater than the effects of the global economic slowdown on health-related businesses and employment.
This relative strength in healthcare was reflected in the recent employment report which noted every industry losing jobs "...except education, health care, and govenrment."
Which brings me back to Varian Medical Systems (VAR).
On January 12, 2009, Varian announced that in the first quarter of fiscal 2009, there would be a net growth in orders between 12 and 13% ahead of the year-ago period. Tim Guertin, president and CEO of Varian noted that this performance was in the face of continuing economic stress:
"While there is unprecedented volatility and uncertainty in this economic climate, the solid net orders growth in the first quarter gives us cautious optimism about the prospects for our businesses in 2009," said Guertin.
Furthermore, Varian late last year announced a continuation of a stock repurchase plan, with the authorization to pick up an additional 8 million shares of stock in 2009. As the company reported:
"Since initiating share repurchase authorizations at the end of fiscal year 2001, the company has spent $1.4 billion to repurchase 36 million shares of common stock at an average price of $40.13 per share."
Stock repurchases are helpful in supporting and advancing the price of a company.
Let's take a closer look at some numbers behind this company as reported on the Morningstar.com "5-Yr Restated" financials. First of all, we can see a very pretty picture of steady revenue growth from $1.24 billion in 2004 to $2.07 billion in 2008. Earnings have also increased in an uninterrupted fashion from $1.18/share in 2004 to $2.19/share in 2008. At the same time, outstanding shares, as explained above, has been decreasing from 142 million shares in 2004 to 128 million in 2008.
Free cash flow, as reported by Morningstar, has been positive and growing with $160 million in 2006 increasing to $291 million in 2008.
The balance sheet appears solid with $397 million in cash and $997 million in other current assets. This total of $1,394 million, when compared to the $781.7 million in current liabilities yields a current ratio of 1.78. Varian has a relatively small amount of long-term liabilities reported to be $166.7 million.
Reviewing a few "Key Statistics" on Varian from Yahoo, we can see that this stock is a mid cap stock with a market capitalization of $4.43 billion. The trailing p/e is a moderate 16.26, but with strong growth expected, the PEG is reported at a very nice 0.87 level.
Checking the Fidelity.com eresearch website, we can see that in terms of the Price/Sales ratio, Varian is relatively inexpensive with a Price/Sales (TTM) ratio of 2.24 compared to the industry average of 6.15.
The company is also relatively more profitable than its peers with a Return on Equity (TTM) of 31.49% compared to the industry average of 14.24% per Fidelity.
Returning to Yahoo, we find that there are 124.25 million shares outstanding with 123.37 million that float. As of December 10, 2008, there were 7.11 million shares out short representing 4.6 trading days of volume (the short ratio), which is a bit more than my own '3 day rule' for significance. We may have seen a bit of a 'squeeze' of the shorts yesterday on the back of the good news announcement.
No dividend is paid and the last stock split was a 2:1 split back on August 2, 2004.
Finally, let's take a look at the chart with a 'point & figure' graph from StockCharts.com:
Here we can see that after hitting a 'double-top' in August, 2008, at $65.00, the stock broke down and continues to trade with lower lows and lower intermediate highs to the current level around $35.62. I see little to indicate any technical strength in this chart unfortunately.
However, I am not currently prepared to buy shares in Varian (VAR) nor any other new position. The decision to buy a new holding will only result after one of my current holdings hits an appreciation target on the upside. Needless to say in the current market, my holdings are moving in rather the opposite direction!
But in the midst of this depressing trading milieu, I continue to remain optimistic long-term and continue to look to identify the quality companies that are able to persistently grow revenue, earnings, free cash flow, and possibly dividends, while maintaining solid balance sheets and reasonable valuation. Except for the weak chart, Varian (VAR) is quite impressive and has easily earned a place in my blog!
Yours in investing,