Tuesday, November 23, 2010

Bought MDT

If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?

I am not standing still. Besides buying a condo, I bought and sold a series securities. One of the most notable ones is the new purchase of 500 shares of Medtronic (NYSE: MDT) at $33.37 paying $7.95 commission on October 11.

MDT is serving more than 7 million people annually with over 40, 000 employees. From 2006 to 2010, its revenue increased about 40%, per share dividend more than doubled, diluted EPS increased 35% and shares outstanding reduced by 10%. And yet, it is trading at a range of high 40s to high 50s in 2006. Right now, it is changed hands at low 30s.

During the market weakness, MDT bought a lot of businesses. In the last year, it acquired INVATER, COREVALVE and VENTOR. Those acquisitions eliminated competitors at a good price, leveraged its global footprint and created natural synergy.
For 2011, the company expects to earn $3.4 per share. It raised debt under the unusually low interest rate environment and used the money to make more acquisitions. It is in a triopoly market mostly avoiding price competition. People can perhaps postpone the medical device operation because of the bad economic situation but can’t avoid it. The postponed sales will come back in the following years. And with more entrenched position, MDT is going to capture more of the sales. Once the growth comes back, I can reasonably believe the multiple may expand. While waiting, the stock is paying 2.6% dividend.

If in 5 years, the economy comes back to life, MDT will make about $5 per share. It may have 100% upside. Therefore, if the market continues to treat MDT without respect, I may add to my positions.

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