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Thursday,
June 4, 2009
(Cont'd from
above)...
Jim (cont'd):
Jim:
So, what if it
took a year and half
to happen… as I say
in the first gospel
according to me,
Jim Cramer's Real Money: Sane Investing In An
Insane World…
patience is a
virtue… but giving
up on value, well,
that is just
nonsense… our
patience has sold
off… time to put
Wind River in the
sell block… you do
not want to be an
arbitrager… owning
this one now is
about only one
thing… whether the
deal closes… your
upside is tiny and
it is capped… and if
the deal does not
close for whatever
reason, your Wind
River could turn
into, well lets just
say the Yaloo River…
with the losses
pouring across like
the people’s
liberation in the
Korean War… just
take a bow… take the
gains… walk away.
Same goes for
Axsys Technologies, Inc.
(AXYS),
which I recommended
at $40.51 back on
February 15th of
this year… it is
being bought by
General Dynamics for
$54 a share… I want
you to ring the
register right now…
30% win… always
great to get a 30%
gain in 4 months… to
not hang out for a
higher bid… okay,
those are the
winners.
How about selling
something here… how
about a sell block
potential loser…
today Deutsche Bank
came out with a
negative call on the
for profit education
companies… saying
that the Feds might
finally be turning
on these diploma
mills… of course,
the companies don’t
regard them as a
diploma mill… who
takes vast sums of
money from the
government thru
various forms of
financial aids… and
spend more, really,
more than half on
advertising… not on
teaching you… on
advertising to get
you.
Apparently last week
the Deputy Under
Secretary of
Education met with
some people from
traditional
colleges… and
Deutsche Bank says
the tone was very
negative for the for
profit schools…
according to
Deutsche Bank, I was
not in the room, do
not have the
sources, the Under
Secretary is looking
for stories that
highlight any
maltreatment of
students by for
profit schools… and,
here is an odd one,
stories that portray
the students as
victims… score one
for noted short
trader Jim Chanose,
who as we told you
last Friday,
predicted that this
would happen when he
was at a big
conference talking
in front of other
hedge funds.
The for profit
stocks are getting
killed today… and if
the administration
is targeting them,
which is how it
seems, then the
selling is not over…
serious trouble… I
am with Chanose,
against Mandell…
that is what we did,
we presented those
two as a face off.
And now, for the
company that I am
most concerned
about… which has
been a huge winner
this year…
Intuitive Surgical Inc. (ISRG)…
here is a stock that
is up 82% from the
beginning of March…
and it is not thanks
to my absolute
favorite show in the
universe, called
“Grey’s Anatomy”… it
is the season
finale… but this is
one business where I
think the
fundamentals are
getting worse, not
better.
Intuitive Surgical
has a big problem,
big enough to
warrant putting it
in the sell block…
it does not have to
go to solitary… but
no more conjugal
visits… the problem,
I worry, and this is
not something that
you can get rid of
with the wart
remover… I worry
that its customers
are in danger of
going bankrupt… and
whether or not they
actually do, they
will still have no
choice but to cut
back on their
spending and that is
going to hit
Intuitive Surgical
like a ton of
bricks… ISRG sells a
robotic surgical
system called,
DaVinci, hence, the
decision to get a
portrait of da
Vinci… which
performs
hysterectomies and
prostate surgery… to
hospitals for
between $1.6M and
$1.7M… and given the
precarious financial
situation of most
hospitals right now,
I just have trouble
seeing them shelling
out the kind of
money that gets a da
Vinci machine… even
for something that
is really cool… that
could be very
profitable somewhere
down the road.
You cannot own the
stock of a company
if its customers are
struggling to
survive… according
to an American
Hospital
presentation in
April, 43% of
hospitals expect
losses… and since
the beginning of
2008, 77% of
hospitals have
reduced capital
spending… and 54% of
them have stopped
future projects… it
is hard to imagine
ISRG selling lots of
da Vinci hardware,
when almost every
week we hear that
yet another group of
hospitals are
nearing bankruptcy…
or already there…
the hospitals are
weighed down,
burdened, by loads
and loads of bad
debt… they are
likely going to
slash their budgets
even further… they
are receiving fewer
contributions from
charity… not a
pretty picture…
would you expect an
oil company to spend
loads of money on
deep water drilling
with crude at $40 a
barrel… that is
exactly what it
would be like if a
hospital that is in
really bad shape
would buy one of
this companies $1.7M
machines.
And you know what, I
think that Intuitive
Surgical knows that
it is in trouble…
historically this
has been a company
with terrific
earnings visibility…
meaning that it was
easy for management
to see and predict
how much money it
will make pretty far
out into the future…
its machines are all
built to order,
which usually makes
for great
visibility… but in
April the company
suspended its 2009
earnings guidance… I
regard that as a bad
sign… now, even if
the hospitals were
in decent shape,
remember that
Intuitive Surgical
has been a super
charged growth stock
for years and years…
it has done a
phenomenal job of
selling its surgical
system… but that
means that it just
doesn’t have much
more room to grow…
it already has
machines in 63% of
its year one
hospitals… and it
has saturated the
market for its top
procedures, 81% of
prostate removal
procedures in the US
were performed with
a da Vinci in 2008.
Even it if ends up
taking 100% share,
right, the super
fast growth here is
over… because ISRG
is running out of
prostates… they can
shift to doing more
hysterectomies… but
they will only bring
in $1300 per
procedure, $500 less
than the per
procedure revenue
from prostate
surgery… this is
money ISRG gets from
selling the hospital
throw away, one used
parts… I call them
razor blades, it is
a razor blade model…
now, despite all of
this the analyst who
covers Intuitive
Surgical for
Needham, upgraded
from hold to buy… I
thought that that
was wrong… remember,
a lot of these
negatives have been
known and the stock
still went up 80%…
so I am not giving
you anything
repletory… I am just
saying, up 80%, come
on.
The bottom line…
▼ ▼
▼ ▼
▼
 Jim's
comments AFTER the
interview:
Intuitive Surgical Inc. (ISRG)
is up more than 80%
since the beginning
of March.. that
alone would merit
some schnitzeling…
it is a high flying
growth stock at 33
times earnings… and
while that is below
its historical
range, the companies
potential customers
I regard as trouble…
and it may have
reached the point
where there just
isn’t that much
growth left anymore…
I say ring the
register… take the
profits… move on
from ISRG.
ISRG has had a nice
run… but its
fundamentals, I
think, are
questionable… I
think that it is
time to put the Da
Vinci maker in the
Sell Block.
[verbatim recap]
▼ ▼
▼ ▼
▼
Jim went on after
this segment to take
questions from
callers, and
responded with his
comments...
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Q:
My question involves
healthcare stocks. I
have always invested
in healthcare stocks
as part of a
diversified
portfolio, my
largest holding is
JNJ. I also own
Stryker, Gilead
Science and Abbott
Labs. These stocks
are not
participating in the
rally. My question,
is how will I know
that it is safe
again to buy these
stocks?
Jim:
Well, the answer to
that is… you will
know it is safe when
either the
legislation passes
or fails, you see we
have a President who
has targeted these
companies… now when
I say targeting, I
do not mean that he
is trying to close
them… he is pitting
them against each
other… and what that
is doing is that it
is lowering the
price to earnings
multiple, what
people are paying in
the future… I can
give you absolutely
no assurances when
these are going to
turn around… I will
tell you that they
are selling at
historically low
multiples… so I
would not give up on
them… Johnson &
Johnson, the kind of
company that Buffett
was selling, he is
buying it back… I
cannot cotenant
selling these fine
American companies…
but I will tell you,
they will not
participate until we
get resolution in
Washington… and that
could be years to
come… years to come…
with this President
who wants to change
our healthcare
system, and talks
about it nearly
every day.
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Q:
This is about Tenet
Healthcare, the
company plans to
offer $450M in ?
secured notes,
maturing in 2019
thru the private
placement route.
What is the private
placement route? And
would you Tenet
Healthcare at
today’s price?
Jim:
You know what, I
have been kicking
around the Tenet
Healthcare… my
friend, Cheryl Scone
at CRT Group, says
listen I am a little
too bullish on it… I
got bullish on it
because she got
bullish on it… I
would not want to
own those notes,
they cap your
upside… it is a
private funding with
a group of rich
people, that is all
that is it… I think
that we should be
taking profits in
THC, after speaking
with her this week…
I do not want to
overstay my welcome…
it is a $2 stock
that just went to
almost $4.
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[verbatim
recap]
[end of segment]
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