MDT

I have owned MDT for about 6 years now with virtually nothing to show for it -- the opportunity cost of what I could have earned with that money in another stock or even a fund is staggering. I paid way too much for MDT back in 2001 -- I bought it on a pull back at 30X earnings -- that was on a pullback! MDT's PE, like a lot of other growth stocks at the time, had reached levels that were unsustainably high (vs. what they were actually able to earn).


MDT's revenues and earnings grew in the mid teens for a few years afterward -- until the last year or two when issues with slow ICD growth led to more like 10% revenue growth. share buybacks, lower tax rates, cost cutting, etc. have allowed EPS growth to remain in the mid teens. The PE has dropped to the point where now the stock sells for around 17X next year's numbers. So the stock is flat because the earnings have gone up but the PE has been cut in half.

This is a key risk for a growth stock -- the growth occurs but investors decide the future won't be as good as the past so the PE drops. That's why I stress valuation -- if the PE isn't high when you buy then the odds of you being hurt when the PE drops are less.

The latest news is that their leads on their ICDs are not functioning properly -- complications. the risk is that this is another reason for doc's not to refer patients for an ICD and MDT can no longer claim product superiority vs. BSX. I doubt its as bad as the 12% drop in the stock but then again the stock ran up on the news of endeavor (drug eluting stent) approval so really the stock is just back to where its been for about 7 years.....

MDT has always had a hold on me -- I just love the cool things they can do with technology inside your body. After every disapointment, I have usually thought there is too much potential with this company and too much quality in terms of the returns and the cash flow, etc. to not own it. a month or so ago in this blog I said I should look for replacement ideas. I haven't really but I should have. The trade was into TECH -- so far at least that one has held its gains unlike MDT's move to the mid-high 50's.

I'll keep searching for the right situation.