Stericycle - A Defensive Stock With Long Term Growth Potential
The Dynamic Wealth Report
July 18, 2008
Would You Invest $20 Million Of Your Own Money?
Every week the major newspapers and industry journals publish stock
movements by industry. Most investors ignore this really interesting
piece of data. I like to watch it closely. I get my category updates
from the Wall Street Journal.
The Journal gets this information from Dow Jones who has neatly packaged
all of the publicly traded companies into 10 industry groups. Each
industry group has numerous sub-categories. They average out the
movements of all the stocks in that specific industry to show the
overall stock movement. At a simple glance you get great visibility into
industry wide performance.
These tables are great for identifying the best and worst performing
industries. If you use the online tools you can screen for all different
time periods.
An interesting observation.
Over the last month many . . . scratch that . . . most of the industries
were in the dumps. Oil & gas and basic materials were down 13%, the most
of any industry. Telecom, utilities, and financials were down 8%.
Consumer services and technology fell 7%. Industrials fell 6%, and
consumer goods was down 3%.
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So enough numbers, what’s the point?
There’s only one group showing a profit over the last month. The health
care industry was up more than 3%. Not bad considering overall market
performance over the same period.
This is an interesting departure. Just a few months back the only
industry group showing any promise was oil & gas. Financials were in the
dumps, and health care wasn’t too far behind.
Traditionally, when the economy enters a recession, you see a
fundamental shift of investor sentiment towards stable, recession proof
industries.
Recession proof industries are simply those industries that provide
services everyone absolutely needs. Agriculture is a good example . . .
no matter how bad the economy gets everyone needs to eat. Health care’s
another example that’s easy to understand. You might postpone buying a
new car in a soft economy, but you’re not going to postpone needed
medical care.
I believe a fundamental shift is starting now.
Everyone needs to realize this recession is going to be long and
painful. Now is the time to start shifting assets into these recession
proof industries – if you haven’t done so already.
Healthcare’s my top choice, not only because of the short term shift,
but also because of longer term drivers. Think about it. One of the
largest generations, the baby boomers, are getting older. As the
population ages the number of medical procedures they require is only
going to go up.
An interesting discovery . . .
So I started looking at different industry sub-groups and the various
ETFs focused on the health care industry. Then I came across an
interesting bit of information that really caught my eye.
First, let me tell you about the company I uncovered.
Stericycle (SRCL) is a $4 billion dollar waste management company. I
know what you’re thinking. “Waste Management?" What happened to
"Health
Care?” Just give me a second.
Stericycle’s core business is collecting and disposing of medical waste.
See, I told you there’d be a health care connection. Regardless of
economic conditions people still go to hospitals and doctors. Procedures
and surgeries are still performed. And these procedures all generate
waste that needs to be disposed of. That’s Stericycle’s specialty.
The company’s customers are hospitals, doctor’s offices, clinics,
pharmacies, and drug manufacturers. This isn’t a small mom and pop
business either. Last quarter they generated more than $31 million in
net income on revenues of $258 million.
So what was the information that caught my attention?
A secret SEC filing.
Honestly, it’s not so secret, but you need to know where to look (and I
know where to look). What I found was nothing short of amazing. Stericycle Chairman Jack Schuler and director John Patience bought a
combined $20 million in stock.
$20 million dollars invested into a business that they already had huge
investments in.
This is truly management putting their assets on the line. I don’t know
of a better way to align management and shareholder interests. I guess
this also tells us what management’s thinking about the company's future
prospects. If they’re willing to
pony up $20 million, they no doubt feel the stock price has nowhere to
go but up.
In early July Chairman Schuler bought 230,637 shares and Director
Patience bought 169,363 shares. Keep in mind this is no penny stock. The
average price per share was over $50.
Chairman Schuler is no fly by night greenhorn either. He sits on the
board of Medtronic and Quidel . . . two other companies in the health
care industry. Stericycle has been a great investment for him. In the
last 10 years he’s made a killing on the stock. On a split adjusted
basis the stock is up from around $3 in 1998 to over $55 today. For
those of you quick on the math that’s a return of about 17 times.
If you’re looking for a unique way to play the health care industry take
a look at Stericycle. It looks like a great value – I know the
management team would agree – 20 million times.
• Citigroup (C) was upgraded from a sell to a hold by Deutsche
Securities. Apparently the banking crisis is over and they forgot to
tell the market.
• ValueClick (VCLK) was downgraded this week by both Citigroup and
Stanford Research. Following in the footsteps of Google, the web
advertising company cut their revenue forecasts.
• Citigroup just initiated coverage on Genentech (DNA). The Citigroup
analyst who just started covering the company rates them a buy.
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