By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory, 11/30/09. Sign up for free Cabot Wealth Advisory e-newsletter
Medifast (MED) is a purveyor of pre-packaged portion-controlled meals.The primary market for its products is people who want to lose weight; a secondary and overlapping market is people who want to control Type 2 diabetes.
Back on August 17, when the stock was selling at 15, it earned a spot in Cabot Top Ten Report, and here's some of what editor Mike Cintolo wrote:
"In recent weeks, we've twice seen nutrition supplements juggernaut NBTY in Cabot Top Ten Report so it's no surprise that we now see Medifast, a company that sells "meal replacements" designed to help customers lose weight. The foods—including shakes, stews, soups, oatmeal, chili, eggs, bars and puddings—enable the customer to eat six times a day, but the food is low-fat, low-carbohydrate and low-calorie, so a person who sticks to the plan succeeds. The company has grown revenue every year of the past decade, and the stock is strong now because Medifast's recent efforts have resulted in an acceleration of growth of both revenues and earnings. The company has four main sales channels—direct marketing, direct sales, bricks-and-mortar clinics and doctors—and the recent boom has come from hiring new "health coaches" (there are 4,650 of these salespeople in the direct sales channel) and from better managing spending in the direct marketing channel. Impressively, after-tax profit margins in the past two quarters have been 7.4%, the highest since the third quarter of 2006. A wild card here that could help is the current national focus on healthcare reform, which is increasing awareness that our national obesity is unhealthy and costly. Properly managed, Medifast could go far."
Since then, the stock is up 79%...and today it appeared in Cabot Top Ten Report again!
Part of the reason for the stock's strength is the superb third quarter earnings report, which saw revenues up 65%, continuing their trend of acceleration. Earnings grew 109% and profit margins, at 7.6%, were higher than they've been in more than three years.
I like the stock because the company is still fairly small, with annual revenues of $145 million. I like it because it serves a true mass market. And I like it because America needs it. In fact, (cycling back to my original thought about my medical insurance) I'm thinking that the $75 a week that Medifast costs might be a better "investment" than insurance premiums that buy access to our health care system!
But if you do invest in the stock, beware of volatility. This stock is a mover.
Editor's Note: Medifast has been recommended in Cabot Top Ten Report, along with dozens of other hot stocks, like MasterCard (MA) UP 30%; Canadian Solar (CSIQ) UP 50%; Continental Resources (CLR) UP 122%! Cabot Top Ten Report is the best source for new stock ideas, bringing subscribers 10 stocks with incredible momentum each and every week. Click here to get started today.
Timothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.