When I worked as an equity research analyst at DLJ in the 1990s, one of my fellow analysts would say, "When the market is falling, an analyst should be doing more research." Very wise advice.
When everything is going up, up, up, it's easy to be an expert on every stock one owns. Even if one never does any research at all.
What could go wrong? The Fed's got my back! Well, the markets haven't been drinking that Kool-Aid for the past five weeks, so it's time to put shoes on the pavement.
So on Wednesday -- at an investment conference and over the phone -- I talked to a passel of CEOs. Those conversations reassured me on a couple of current positions and convinced me to start a new one.
A few highlights:
Acme United (ACU). I met with CEO Walter Johnsen yesterday in New York. While I have always sung the praises of ACU's defensive product offer -- scissors, knives, pencil sharpeners, first-aid kits, etc. -- it occurred to me in speaking with Johnsen that ACU is in perfect position to play offense. Why?
ACU is a prime beneficiary of the devaluation of the Chinese yuan. The majority of ACU's products are made in China, they sell very little there, and ACU's principal raw materials -- the company is the world's largest manufacturer of scissors -- are plastic and steel, prices for which have fallen based on concerns about, you guessed it, China.
With the ACU board's recent declaration of a $0.09 per share regular quarterly dividend for shareholders of record Oct. 1, it's time to buy Acme United and ride out this market volatility.
Second Sight Medical Products (EYES). I spoke with EYES' Chairman Bob Greenberg and newly named CEO Will McGuire at some length at that same conference in NYC yesterday.
Investors seem to have forgotten about EYES' revolutionary Argus II bionic eye in the midst of the recent market turmoil.
McGuire's mandate is clearly to ramp up near-term sales of Argus II. The product works, and EYES recently published a study of three years' worth of data from its first Argus II patient cohort.
Broadening Argus II's indication from retinitis pigmentosa to age-related macular degeneration (AMD) is a key growth driver for EYES. The first implant of Argus II in an AMD patient went quite well, and Greenberg noted yesterday that the implanting hospital, the Manchester Royal Eye Center, had been deluged with calls from AMD sufferers wishing to participate in the implantation study.
So Second Sight's no flash in the pan, but to get EYES stock back to its first-trading-day levels, the company is going to have to increase its pace of implantation from the 19 to 20 that were done in the first and second quarters.
McGuire is clearly focused on increasing the penetration of Argus II, and I still believe in EYES' story and the company's ability to produce sight restoration that is nothing short of miraculous.
Sundance Strategies (SUND). I spoke with Sundance CEO Kraig Higginson yesterday. Sundance participates in the market for Life Settlements, a transaction in which a third party purchases a life insurance policy from the policyholder and then pays premiums and ultimately receives death benefits after the former policyholder dies.
Insurance industry heavyweights like Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) and Apollo are involved in the Life Settlements game, and it's clearly a niche business that requires much due diligence.
Sundance management goes through individual policies in incredible detail and uses an outside consultant to check their work. Then, unlike many of the other Life Settlements players, it actually has its own policies de-risked by using a re-insurer.
So, it's a bulletproof system, and Higginson noted that he was most proud of seeing the system progress through an entire loop. The process has been confirmed, and SUND is in the process of a bond issuance, which will monetize current policies and would free up the company to buy more policies.
Life Settlements work, and SUND's capital structure gives it a level of safety that is most attractive in these wild markets.
