Thumb sucking again! what is this the 2nd or 3rd time I have whined about thumb sucking and missing a chance to add to TECH? ugh! Anyway, over the last week or so I have thought about adding to TECH because the stock had dropped a good 10% or so down to $60 and below. I was planning on swapping my MDT for it -- of course that one has dropped too but the difference is TECH's fundamentals are strong while MDT's are questionable -- could be improving but have consistently been worse for awhile.
I couldn't get past the idea that TECH's multiple was several points higher than MDT for what should be about the same level of growth. So what happens? Techne reports a stellar quarter -- just blows away the revenue and earnings estimates. So the stock pops over 7%. Meanwhile I reminded myself that the PE premium that TECH has is due to 2 reasons 1. much better profitability and 2. much higher confidence in that growth rate.
TECH is a better business and therefore deserves to trade at a premium to MDT. That said, MDT is a turnaround story -- one that could show improving fundamentals in which case it could turn out to be the better stock after all. TECH hasn't actually been the best of stocks -- I have owned it for about 18 months and my gain is about $10 a share or a high teens percentage. That's not bad -- its in line with what you would expect -- a slow consistent rise upward that after several years will look pretty cool but at any one time looks pedestrian. Not a bad idea to have a few of these lower beta (less volatile) stocks in the portfolio to balance out those gazelles.
Have to wait and see -- may get another chance to buy in and hopefully this time I won't miss it.
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2 comments:
As you know, Techne has rarely ever been "cheap", which is typical for outstanding quality growth-companies having high visibility on future revenue/earnings growth (Switzerland's Lindt&Sprüngli would be another one; traded at the SWX).
You know as well, that Techne is to me THE example of an ideal investment:
1. Proven track record? Techne gives you 15+ years of uninterrupted revenue, earnings, EPS and gross/net margin growth. Reliable like a Swiss clock (unfortunately the same cannot be said of Swiss banks), often surprising on the upside. Rarely, Techne faces minor bumps in the road, which have ALWAYS spellt opportunity for the avid buyer of TECH-shares.
2. Great management team? You've got it here. T.E.Oland always gives conservative and reliable outlooks (BTW, he was one of the few CEO's stating in the annual report (was it 2001?) that the shares of his company are just ridiculously overvalued); TEO has been acting as CEO, Chairman, Treasurer, CFO and I don't know what until recently, thereby saving tons of money for the company an the shareholders (you also know that TEO routinely waves his annual cash bonus). When he decides to buy back a significant amount of shares he does so at low prices (this latest buyback above 60USD somewhat surprised me; but then again, it was a mere one percent buyback).
3) great business model? You've got it: Techne is the dominating market leader in its niche; lifescience R&D is bound to continue to accelerate in the foreseeable future and Techne's reagents/kits will not be replaced rapidly, nor will there be an imminent price war (quality, reputation, high barriers to entry); Techne has a highly diversified customer base and does not bear a specific risk with one dominating product (i.e it is the opposite of a one trick pony).
4) Profitability? Techne is almost obscenely profitable. While I have been thinking for a while that it cannot get much better than that -well, TECH just shows times and again that margins have still room to grow....
5) Balance sheet? We all know it: tons of cash, practically no debt. Not a capital intensive business. However, a great cash-flow machine.
6) and don't forget the biotech assets: p.ex Techne spent something like +/-15 mill USD in Chemocentrix so far, a 20% stake which is now worth several fold the initial investment. As with Techne's basic business: great ROIC! Which leads us seamlessly to Contango Oil (MCF) and its founder/CEO/Chairman and whatever K.Peak, who is another highly talented allocater of capital. It is great to be co-owner of companies led by smart & honest owner-managers like TEO and KP.
All in all: Whenever you diworse-ify away from your Techne holding, you usually regret. Buying on the dips almost always spells success, micromanaging your Techne shares usually does not. With MCF it was different: while I just wanted to participate in the business led by KP too much was unproven when I took my initial, smallish position at 8.5. However, as time went by, the large GOM discovery was made, etc,etc, and the story kept on getting better. I therefore decided to make MCF a top position of mine, steadily adding shares as the story evolved, buying on the upside (the last addition was at 55-56)...
regards
Dr. John
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