One tried-and-true subsector that's been a constructive area for investment in recent years is that of medical devices and products. Typically, that phrase brings to mind companies such as Medtronic (MDT), Edwards Lifescience (EW) or Baxter International (BAX).
But some companies don't get quite as much press, as they are not a part of the S&P 500 -- yet they are definitely worth watching for their price appreciation potential.
One of these is Cambrex (CBM), which specializes in drug delivery and commercialization technologies. The stock bolted 22% Thursday, in 5x average turnover, after the company reporting second-quarter results. Prior to the report, the stock had been setting up with bullish technicals, having pulled back gradually from its July 5 multiyear high of $10.22.
After Tuesday's jump, I'll be watching for Cambrex to pull back again. The five-day line will rise; if the stock pulls back and meets that line, it could offer a new entry point.
Another overlooked name is Cyberonics (CYBX), which makes implantable treatments for various neurological disorders, including depression and epilepsy. Yet it's an example of a stock getting potentially constructive moving-average support. Cyberonics, similar to Cambrex, has a good fundamental track record, and analysts expect continued double-digit income growth in the next two years.
The company is expected to report its fiscal first quarter later this month. Analysts have pegged income at $0.36 a share, and revenue at $58.53 million, which would mark increases over the year-ago quarter. Earnings are expected to grow 19% in fiscal 2013 (its current fiscal year), and 19% in fiscal 2014. Cyberonics beat earnings views in each of the past four quarters.
Last month, Cyberonics stock came within striking distance of its July 2005 all-time high of $47.77. Since then, it's retreated back to its 50-day moving average. When I'm looking at trades -- and not longer-term holds -- a pullback to the 50-day line is often too much to sit through, unless I have quite a cushion in the stock.
With Cyberonics, the five-day exponential average is hovering below the 15-day. When the shorter line crosses above the 15-day, that may offer a buy signal.
Another small-cap medical-gear maker that's showing a good mix of price movements and earnings growth is Vascular Solutions (VASC). The company's devices are used in procedures performed by cardiologists and vascular surgeons.
The stock is up nearly 24% year to date. In Thursday's session, it retreated to its 15-day exponential moving average, where it found support before rebounding. Shares closed 0.8% above its five-day line. That put Vascular back in buy range, below its July 25 multiyear high of $13.85.
Last week, the company beat earnings and revenue views for the second quarter. That spurred the July 25 4.7% move in triple average volume.
The biggest reason to be cautious about this stock is the company's size: Vascular Solutions' market capitalization is at just $218 million. It trades only 54,000 shares a day, definitely placing it in the "thin" category. Thin stocks carry extra risk, because one or two big investors can exit their positions and send shares sharply lower. Given the small number of U.S.-based mutual funds and hedge funds that own shares, this can't be called an institutional-quality stock.