I purchased 30 shares of WTM on 2/24/2009 for $203.58 and sold on 7/9/2010 for $331.17. While the returns on this investment were good, they weren't significantly different than the broad market, so I can't really call it a win. I still think WTM is undervalued and has a top notch management team, HOWEVER I think there are better opportunities elsewhere. Despite selling my shares, I'm going to keep this one on my watch list.
I purchased 650 shares MYGN on 7/9/2010 for $15.05, and as with most purchases this position is now approximately 10% of my portfolio. MYGN hit its 5-year high in early 2009 in the low 40's, so it's really been quite a fall since then (in fact, the stock hit its 52-week low the same day I bought it). Anyway, Myriad essentially does 2 things:
- It's predictive medicine products help determine the likelihood that a patient will get breast/ovarian/colon/skin cancer.
- It's personalized medicine tests allow doctors to customize the treatment received by cancer patients for the best possible results.
This is pretty heavy stuff - predictive and personalized medicine. So why has the stock been hammered?
- It's not growing as fast as the market predicted and priced. Obviously lowering growth forecasts has a significant impact on valuation, and my guess is many "growth" investors are dumping their shares.
- There is significant uncertainty around the company's patents, and weaker patent protection could make MYGN vulnerable to increased competition.
My guess is the market is overreacting to these negatives, and as a result the stock has been punished too harshly. Here's my thesis - I think MYGN can grow in the mid-teens for at least the next 5 years, but really it has the potential to grow at this clip for next couple of decades. It's trading at less than 8x EV/EBITDA and a PE ratio of 12x for the ttm - this is VERY cheap for a company with this kind of growth profile. Also, since capital requirements are low, free cash flow is quite strong.
So what are the expected returns? Well, if MYGN grows in the mid-teens for the next 5 years before leveling off, I'd expect the stock to be worth somewhere in the high 20's. If it grows in the mid-teens for the next couple decades then the stock's worth significantly more. Finally, if I'm wrong and the market is right, then the stock is probably fairly valued at today's prices. So, I guess we'll see what happens...
On a side note, my portfolio is now about 25% cash. This feels OK, but I may look to increase my cash allocation in the near future. Afterall, there's a lot wrong with the world - municipal/state/sovereign defaults are all a possibility, deflation could be around the corner, with inflation around the corner after that... As PIMCO's Gross/El-Erian say - we're driving down a bumpy dirt road in the dark without a spare tire...
