January 28, 2008
2, Issue #2
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2. China Medical Technologies (CMED)
Game Technologies (IGT)
5. Investor Trivia -- Solar Power
6. Featured Topic --
7. Free Investing
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Top Stock Picks
Medical Technologies (CMED): A Potentially Phenomenal Growth
CMED has been tantalizing investors since it went public
back in August 2005. The company is a producer of diagnostic
kits that use bioluminescence to screen for diabetes,
thyroid abnormalities and other conditions.
Read More. . .
One of Our Favorite Stocks for the New Year
With a dominant market share and strong growth drivers, we
like slot machine maker IGT in 2008.
Read More. . .
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With the major
averages in a painful four-week losing streak, it's understandable
if there may have been a few jitters around Wall Street this past
Monday. And with the U.S. markets closed in observance of Martin
Luther King Jr. Day, it didn't bode well that overseas exchanges
suffered through one of the most brutal sell-offs in years.
With fears of a global economic downturn building, stocks throughout
Europe were ravaged. Major benchmarks in London and Paris registered
declines of -5.5% and -6.8%, respectively, while Germany's blue-chip
DAX 30 tumbled more than -7%. And things weren't any better in Asia.
Stocks in Hong Kong plunged almost -6%, and India's Sensex was down
nearly -11% at one point, finally closing with its second-biggest
daily decline on record.
At that point, the Fed decided to intervene -- announcing plans to
slash short-term interest rates by 75 basis points in an emergency
session. It is rare for the Fed to cut rates between regular
meetings, and this one was rarer still because of its size -- the
largest rate cut since October, 1984. All of that raised concerns
that even deeper economic problems might be lurking around the
Still, if the market needed a wake-up call, this may have been it.
After retreating more than 450 points in early trading, the Dow
Industrials staged a powerful recovery and went on to recoup more
than 300 of those points later in the session. Nevertheless,
Tuesday's declines left the Dow down -10% for the year, and pushed
the small-cap Russell 2000 more than -20% below its peak from last
July -- the technical definition of a true bear market.
Fortunately, the market proved once again to be resilient and
managed to bounce back from the abyss on Wednesday. The Dow
rebounded more than 600 points trough-to-peak in a dramatic
turnaround, and the rally continued the next day on optimism that a
massive stimulus package (which will see millions of tax-paying
families receive rebate checks of $1200 or more) will inject some
life into the economy.
For the week, most of the major averages managed to snap their losing
streak, posting modest gains of less than +1%.
By no means are we out
of the woods, but last week's rate cut (and quite possibly more in
the near future) could help the economy stave off a recession and
pick up steam.
In the meantime, following Monday's steep pullback, many Chinese
companies -- like China Medical Technologies (Nasdaq: CMED,
$48.22) -- have come roaring back. And below, Cabot China &
Emerging Markets Report editor Paul Goodwin gives a favorable
diagnosis for this medical device maker -- which has brought science
fiction into the present with a machine that can zap tumors using
nothing more than concentrated beams of sound.
Also on tap for today, Paul Tracy, editor of StreetAuthority's
Market Advisor newsletter, takes a spin on International
Game Technology (NYSE: IGT, $39.56). Would you like to receive a
cut from every coin pumped into tens of thousands of slot machines
around the world? IGT does exactly that -- for a total of $1.3 billion worth last
year alone, to go along with the firm's dominant share of the market
for new slot sales.
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Technologies (CMED): A Potentially Phenomenal Growth Stock
by Paul Goodwin, Editor -- Cabot China & Emerging Markets
China Medical Technologies
(Nasdaq: CMED, $48.22) is a
small Chinese company that's been
tantalizing investors since it went
public back in August 2005. The
company is a producer of diagnostic
kits that use bioluminescence to
screen for diabetes, thyroid
abnormalities and other conditions.
Sales of these kits to Chinese
hospitals have been solid enough to
push earnings up every year since
the company was founded in 2001.
Management has also pushed revenues
along by acquiring rivals in the
diagnostic business, most-recently
the late-November acquisition of
Beijing Bio-Ekon Biotechnology.
But it's not the diagnostic kits
that put the gleam in investors'
eyes when they think about C-Med.
Rather it's the company's
High-Intensity Focused Ultrasound (HIFU)
machine, a computer-controlled
system that uses a beam of
concentrated ultrasound to kill
solid tumors inside the body without
the need for incisions or
anesthesia, and without any reported
pain. The ultrasound beam can fry
tumors inside the abdomen, on bones
or on hands and feet. When the tumor
bites the dust, the body cleans up
the residue and the patient (who
probably came to the clinic on an
outpatient basis) just walks out.
News of this machine helped the
post-IPO price run from $15 to $45
but the price later dropped back
down to the $20-range. The
attractiveness of the HIFU machine
persisted, and after the stock built
a very tight three-month base from
March through May of 2007 at
around $24, news that the machine was
in FDA-approved clinical trials in
the state of Washington kicked off a
new rally. The stock roared from $24
to its recent price near $48.
CMED is still a pretty speculative,
trick-or-treat stock. If the HIFU
machine proves to be safe and
effective and earns the FDA's
blessing, the stock could be a real
rocket. On the other hand, if it
turns out to be a clinker, the stock
will no doubt take a hit on the
waterline. In this regard, CMED is
just like all growth stocks, only
Market Woes. Investor Fears.
Dow up. Dow down.
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IGT: One of Our
Favorite Stocks for the New Year
Paul Tracy, Editor --
StreetAuthority Market Advisor
International Game Technology (NYSE: IGT, $39.56) is the
world's leading slot machine manufacturer. In addition to basic
slot machine design and sales, the company generates more than
half of its revenues by leasing machines to casinos in exchange
for a percentage of the net win. This gaming market provides the
firm with a recurring stream of high-margin revenues. Thanks to
steady expansion in recent years, IGT now draws income from
about 60,000 machines installed throughout casinos in key gaming
markets across the globe.
Competitive Advantages: Thanks to a stringent regulatory
environment, IGT enjoys high barriers to entry and must contend
with only a handful of rivals, including WMS Industries (NYSE:
WMS) and Alliance Gaming. And among this triumvirate of
manufacturers, IGT has a towering lead, producing more than two
out of every three slot machines found in North America today.
Given the fact that slot machines have exploded in popularity --
and that they are generally more profitable than traditional
table games -- it is not surprising that row after row of
machines have taken over considerable floor space in today's
casinos. Furthermore, slot department managers usually don't
hesitate to try out the latest models, considering a successful
machine can pay for itself in a matter of weeks. At the Wynn
Resort in Las Vegas, for example, each machine is generating
average revenues of around $250 every single day.
As the market leader, no one stands to benefit from these trends
more than IGT. With deep pockets and steady cash flows, the
company has been able to spend nearly twice as much on research
and development (R&D) activities as its closest competitors.
This commitment has led to creativity and innovation that have
connected with the average slot player. In a recent poll
conducted by Casino Player magazine, seven of the top ten
most popular video slots were introduced by IGT -- including
longtime favorites such as Wheel of Fortune. In a similar
poll of video poker players, all five of the top spots were
awarded to IGT products.
With a commanding lead, a well-respected reputation, and a knack
for developing games that resonate with players, IGT should
remain the clear leader in this high-growth industry for years
Growth Drivers: IGT is benefiting from a number of
positive growth drivers. For starters, many states are warming
up to the idea of allowing gambling within their borders to take
advantage of the additional tax revenue. The introduction of
gaming in Pennsylvania alone resulted in an initial market for
around 35,000 new slot machines. Even bigger has been the huge
gambling boom in Macau, China. This former Portuguese colony has
now surpassed Las Vegas as the largest gambling market in the
world. Gambling revenue in Macau increased +22% from 2006 to
2007, and this market should continue to grow thanks to a number
of new casino developments, as well as strong growth in
surrounding Asian economies.
More importantly, IGT is the mastermind behind what many predict
to be the next great gaming industry product cycle -- the
introduction of server-based games. Instead of having hundreds
of individual, self-contained slot machines, the idea is to have
one giant computer control all slot machines within the casino.
This new technology allows the casino to cut down on labor
costs, change games rapidly to increase profits, and monitor
revenue in shorter time frames.
The advantage to IGT is that in addition to new casinos
purchasing this new technology, the older casinos will also have
to retool their old equipment. Industry experts are predicting
that 80% of domestic slot machines will be replaced before 2012,
leading to a surge in revenues for the #1 player in this market
-- IGT. Furthermore, players' tastes can change quickly, and the
life span of the average game is shrinking, meaning newer games
(like the increasingly popular multi-line penny slots) must
continually be rolled out.
Of course, as we noted earlier, product sales account for just
under half of IGT's total revenues. The firm generates the rest
via its extensive "gaming operations." IGT has leased tens of
thousands of slot machines -- many of which are linked to
wide-area multi-million dollar progressive jackpots -- to
casinos in exchange for a share of the proceeds. IGT receives a
cut of every coin pumped into these slots, resulting in
recurring revenues of more than $1.3 billion per year. As IGT's
industry-leading installed slot machine base continues to
expand, this segment of the business should help drive the
company's top and bottom lines sharply higher.
Valuation and Outlook: After delivering sensational
returns of more than +20% annually over the past decade, shares
of IGT have stumbled in recent years due to sluggish domestic
slot machine sales. Going forward, however, we believe the core
North American market is poised to grow substantially thanks to
the rollout of server-based games. Add to this the impact of
strong international sales and growing gaming operations, and
IGT's overall earnings are expected to increase at a healthy
+15% annual clip going forward. Moreover, even with a modest
slowdown in top-line growth in recent years, the company has
still managed to generate record cash flows of $820 million per
This well-managed and shareholder-friendly company has been a
portfolio jackpot for many over the years, and odds are
excellent that the firm's winning streak will continue
throughout 2008 and beyond.
This profile is part of our
StreetAuthority Market Advisor
Top Ten Stocks for 2008 report, which is available
subscribers. If you are a current subscriber and would
like to read the remainder of this report, you can
here. But if you aren't already a subscriber, you can
learn more about
Advisor and reserve your copy of this report by
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Investor Trivia --
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Currently, solar power constitutes just 0.1% of U.S.
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Conversion Devices (ESLR)
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Featured Topic --
The Secret "European Aid Program"
Making Millions for Investors
Of course, Western
Europe is no longer the growth
dynamo is was in the late 1940s --
so investors are keen to look
elsewhere. Luckily, there is a
second sort of Marshall Plan
underway at this very moment --
billions of dollars of aid and
reconstruction money are pouring
into a single region of the world.
This "Marshall Plan 2" promises to
be every bit as profitable for investors as the rejuvenation of
post-war Europe. Ironically, this time the Marshall Plan is
being administered by the European Union (EU), and the
beneficiaries of that aid are the formerly communist states of
Central and Eastern Europe.
The parallels are undeniable. The economies in most Eastern
European countries were devastated in the late 1980s and early
1990s in much the same way as their Western European
counterparts were in the 1940s. Most had been propped up, to
some extent, by aid from the former Soviet Union. Law and order
was maintained by often-brutal police forces and militaries
backed up powerful central governments and a single communist
And even with all that aid, living standards were a fraction of
those that prevailed in Western Europe. For example, most
economists believe that in 1991, about one year after Germany
was re-unified, the formerly communist East Germany had a GDP
per capita of only 31% of the level that prevailed in West
Germany. By 1999, that ratio had risen to only about 55%.
The collapse of the Soviet system in the late 1980s and early
1990s also brought other non-economic problems. For example, the
end of central planning led to a lack of law and order and the
rise of organized crime in some states. This situation was not
unlike Western Europe in the 1940s.
But that's all changing...
Note: Because this article is fairly extensive,
we could not include it in its entirety in today's newsletter. You
can find the remainder of this article on our web site. Please
this link to continue reading this article.
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