Buying Back into a Recently Stopped Position — and a New Bet on Medical Devices

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Last week was the most volatile in recent months, with markets having both sharp up and down days. By the close of the week, the Dow Jones had fallen 1.14%, and the S&P 500 was down 0.43%. The MCSI Emerging Markets Index closed the week essentially flat — its best relative performance in a while.

Big gainers in your Bull Market Alert portfolio included AbbVie (ABBV), which added 3.01%, and Bank of Ireland (IRE), which bounced 2.66%.

You were, however, stopped out of two positions — tech giants Google Inc. (GOOG) and Apple Inc. (AAPL).

Between sharp market sell-offs and positive earnings, Google had an exceptionally volatile week, with the stock trading as low as $1,082, but ending the week just about $100 higher.

Although you stopped out of Google with a 25% gain, I am going to recommend that you re-enter this position. Analysts’ price targets on Google currently range from $1,300 to a high of $1,450, which represents an upside of between 10% and 34%.

So, buy back Google Inc. (GOOG) at market and place your stop at $1,070. I am holding off on an option recommendation this week, because the recent high volatility has made Google options very expensive for now.

This week’s new Bull Market Alert recommendation is Thermo Fisher Scientific (TMO) — a medical device company in Waltham, Mass. Although the stock has been up substantially over the past year, here’s why I expect its hot streak to continue.

On Friday, the Federal Trade Commission (FTC) announced approval of TMO’s $13.6 billion acquisition of Life Technologies Corp (LIFE), subject to the sale of some assets to General Electric. Thermo Fisher Scientific already had received approval for the acquisition from both the European Commission and the relevant Chinese authorities over the past few months. The deal is expected to close by the end of the current quarter.

On Thursday, Thermo Fisher Scientific also announced earnings of 1.43 cents per share (EPS) for the last quarter, comfortably beating consensus estimates by 5 cents.

More importantly, by taking into account the integration of the Life Technologies business in 2014, TMO issued 2014 guidance for both revenues and earnings that are well above current market expectations.

The company projects EPS in the range of $6.70 to $6.90, implying an annualized growth of 24% to 27%. TMO also expects 2014 revenues in the range of $16.63 billion to $16.83 billion — growth of 27% to 29% compared with 2013. This adds up to some big upside in the stock in the weeks ahead, especially as the acquisition nears closing.

So buy Thermo Fisher Scientific (TMO) at market today, and place your initial stop at $100.00. For potentially bigger gains, I recommend the March $115 call options (TMO140322C00115000).

Portfolio Update

Bank of Ireland (IRE) added 2.66% last week, quickly clawing back more than half of the prior week’s losses. IRE also managed to buck the wider market trend and make a very bullish jump upwards from the 50-day moving average (MA). IRE is expected to report earnings on March 3, before markets open. IRE is a BUY.

iShares MSCI Spain Capped Index (EWP) remained flat. Spain formally exited its euro-zone bailout last week and also reported the largest drop in unemployment in nine years. Even perma-bear Nouriel “Dr. Doom” Roubini came out last week and stated that the risk of a collapse in the euro zone has “receded.” EWP is a BUY.

Apollo Global Management, LLC (APO) gained 0.78% last week. APO increased its investment in oil and gas exploration last week with an announcement of an expanded partnership with Double Eagle Energy Holdings LLC. Double Eagle leases over one million acres of natural resource-rich ground and plans to use the additional capital to expand into additional new regions. APO will report earnings on Feb. 7, before markets open. APO remains a BUY.

AbbVie (ABBV) added 3.01%, gaining back nearly all of its losses from the prior week. ABBV’s Friday earnings report met expectations exactly, reflecting adjusted net income at $0.82 a share vs. analysts’ estimates of $0.82 a share, and net sales of $5.11 billion vs. a $5.10 billion estimate. ABBV reported extremely positive new-drug test results, shining a positive light on future earnings and boosting the stock price. ABBV is a HOLD.

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London-based Smith & Nephew Plc (NYSE: SNN) agreed to buy ArthroCare Corp. (Nasdaq: ARTC), of Austin, Texas, for $1.7 billion in cash to add products for minimally invasive surgery used in sports medicine.


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