Best Disruptive Stocks

Who Do You Trust?

Best Disruptive Stocks

Spirit Airlines (SAVE)

The older I get, the more I pay attention to the latest developments in medicine. It’s simple self-interest. I figure the more I know, the longer I’ll be able to maintain a healthy lifestyle.

But lately, I’ve noticed a wave of developments that counteract previous “knowledge.”

Back in November, there was a big announcement about cholesterol levels. For years, we were told that it was important to keep total cholesterol under 170 (mg/dl) and low-density lipids (LDL) under 100. But in November, the experts changed course, telling us those numbers had no basis in science; they were just guesswork based on in trials that began in 1948.

Now—even though there is still great uncertainty about exactly how cholesterol contributes to heart attack risk—the American Heart Association has a new online calculator that tells you your heart attack risk based on a variety of factors, of which cholesterol is just one factor.

I took it. It says I have a 6% chance of a heart attack in the next 10 years. But I know that the margin of error is huge.

Anyway, the result of these new guidelines is that even more people will be taking statins—despite the fact that documented side effects of statins include memory loss, Type 2 diabetes, muscle aches and more.

Interestingly, some of the doctors on the panel disagreed with the new approach, but in the end, the statin vendors won out. Statins today are a $29 billion market, led by the likes of Pfizer, AstraZeneca and Merck, and the prospects for business look good!

Then, in mid-December, we got new guidelines for the treatment of high blood pressure. For years, a systolic pressure of 140 was grounds to begin treatment. Now, 150 is the threshold for people over 60.

And for people under 60, the threshold has been raised from 130 to 140.

In short, scientific “knowledge” is continually superseded by better knowledge, and the guidelines that seem so important one year become obsolete the next—which tends to make me skeptical of anything my doctor tells me—including the above calculation about heart attack risk.

And there were two more announcements in the past week.

One, eating peanuts while pregnant does not raise the risk that your child will have a peanut allergy; it actually lowers the risk a bit. Allergies are the most-diagnosed childhood ailment and we have a lot to learn there.

Two, a Finish study proved that knee surgery for age-related meniscus tears is no better than placebo surgery! Nearly a million of these surgeries are done in the U.S. every year, and according to this study, the main beneficiaries of the surgeries are the doctors who get paid, as well as the companies who sell the instruments for such surgery.

Lesson, just because you can do something, doesn’t mean you should.

Lastly, we get to the brain.

The Wall Street Journal recently did a series about the Veterans Administration’s practice of performing lobotomies on roughly 2,000 former servicemen diagnosed as depressives, psychotics and schizophrenics during and after World War II. By severing the connections between the parts of the brain thought to control emotions, they strove to reduce antisocial behaviors—and in some cases they succeeded. But in far more cases, the results were men without personality, or with worse personalities.

Today we view lobotomies as barbaric.

So it was interesting to read just a few days later—again in the Wall Street Journal—that Dutch scientists have successful erased unwanted memories in severely depressed patients by using electroconvulsive therapy (ECT). The scientists don’t know exactly how the process works, because no one knows exactly how memory works, but they’re making progress, and next they’re going to try a memory-erasing drug!

While I’m all in favor of scientific progress, the parallels between lobotomies and memories erased by ECT are scary, and the odds are high that decades from now, this too will be viewed as a cruel practice.

For the record, my health care regime is to eat very carefully, mainly vegetables, fruits, whole grains and non-meat protein; to take a good walk at least twice a day; and to keep my weight no higher than it was when I finished high school. It’s not easy, but it works. And it beats taking drugs!

Last week I introduced my new series on “Best Disruptive Stocks.”

Ideally, these are companies that address a mass market, and thus have the potential to impact our lives for the better.

Ideally, these are companies that are young and not yet well known or well respected. Thus they have the potential for increased perception by investors as time goes by.

Ideally, these stocks are young and not widely owned. Thus they have the potential to be bought by more investors—especially institutions—and thus see their stocks soar over time.

All the Cabot editors have made contributions to this list of 10, and I’ll be profiling them—one a week, in no particular order—over the next 10 weeks. I hope you enjoy them.

Disruptive Stock Number One: Spirit Airlines (SAVE)

Spirit Airlines is famous (or infamous) for charging more for any extra it can charge for, while driving down the cost of a basic airline seat. The company is not yet at the point of charging to use the restroom, but pretty much everything else costs extra, including checked bags, bags that go in the overhead bins, food and drinks, and even the printing of boarding passes by agents.

The result is that budget travelers get to fly for rock-bottom prices and those who can afford to pay a little more can choose to do so. I think it’s a great business model.

Spirit is also notable for having no debt, which is amazing for an airline! While most major airlines are in debt up to their eyeballs (the exception is Southwest with “only” 41% debt), Spirit has none. That’s partly a result of its youth (there’s no aging workforce or aging equipment) and partly a factor of its fairly recent IPO.

Revenues and earnings at Spirit are growing strongly, as the company expands its network to replace routes cut by the big airlines. In the third quarter, revenues grew 33% from the year before, to $457 million, while earnings surged 126%, to $0.79 per share.

Lastly, the chart is young (the IPO was May 2011) and its main trend is up, driven by the buying of investors small and large who are just recognizing the potential here.

Looking at the big picture, it’s likely the big old major airlines will continue to merge and eventually die, crumbling under the weight of antiquated equipment, staff and practices, while creative young carriers like Spirit take increasing market share. I think it totally qualifies as disruptive.

Now, you could simply invest in SAVE right here. You could delay buying until the stock breaks out to new highs—ideally on big volume. Or you could become a regular reader of Cabot Stock of the Month, where I recently recommended SAVE, and get my regular updates every week.

For the record, there are currently eight stocks in my Cabot Stock of the Month portfolio, with an average gain of 86%. There are no losses. If your portfolio’s not as healthy, maybe you should take a look. 

For details, click here. 

Yours in pursuit of wisdom and wealth,

Timothy Lutts

Chief Analyst, Cabot Stock of the Month and
Publisher, Cabot Wealth Advisory

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