Mindray Medical (MR) is a Chinese maker of medical equipment that I recommended as a growth stock in August 2012.
Now, with Chinese stocks deeply out of favor with investors, Mindray is a significantly undervalued stock whose strong growth story hasn’t changed a bit.
When we first got to know Mindray Medical International back in 2006, it was a company with annual sales of just $173 million. Its product line of patient monitoring and life-support, medical imaging and in vitro diagnostic instruments was selling well within China, and revenue had been growing by more than 50% a year for four years. As to the originality of its designs, it would be polite to say that the company knew a good design when it saw it … and copied it.
But Mindray’s owners had both discipline and ambition, and the company was committed to spending 10% of revenue to improve its designs. The aim was to become more than a supplier of cheap knockoffs to the hospitals and clinics of China.
These days, Mindray is a thriving company with a market cap of $3.5 billion and sales of $1.25 billion, 58% of which comes from outside China. The company has a portfolio of hundreds of patents protecting improvements and refinements of the western designs that were the original models for its products. Mindray devices compete successfully with major western manufacturers on their value proposition and quality. In addition to its 29 provincial sales and service centers within China, Mindray has a significant presence in the U.S. and has placed its devices in more than 80 countries worldwide.
In the company’s early years, sales of capital equipment like MRI machines were achieved mainly in small hospitals and clinics, while GE and Siemens dominated sales to first-line hospitals. But years of budgetary pressure and increasing product quality (and service) have made Mindray a contender in larger and more affluent establishments.
In addition to its organic growth, Mindray has grown via an aggressive M&A program. Probably the biggest move was the company’s 2008 acquisition of New Jersey-based Datascope, which brought with it a collection of patient monitoring systems that were already approved for sale in the U.S. The company has since bought Shenke Medical, Suzhou Hyssen Electronics, Zhejiang Greenlander IT and Hunan Changsha TDR Biotech. Every takeover has increased both product count and the company’s dedicated sales network.
MR has been in a downtrend since last August, with the latest hit coming from a disappointing earnings report on May 7. But from a long-term perspective, that’s of little importance. Mindray has a profitable niche in the medical equipment business and the stock will find bottom, rebase and start appreciating when it’s ready. And after a major haircut like this one, value investors will be leading the stock’s resurgence. I’m confident that MR will reward those with a long investment horizon.
I recommend fascinating stocks like Mindray Medical in every issue of Cabot China & Emerging Markets Report although I wait for them to transition into uptrends first. And if you are looking for stocks with the potential to allow you to endow your alma mater with a big gift, it should be on your list. Click here.
By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 11/6/12 Sign up for free Cabot Wealth Advisory e-newsletter
Mindray Medical (MR) is a Chinese manufacturer of medical imaging, monitoring and analysis equipment with a market cap of about $3.8 billion. Not only does Mindray have one of my favorite company names of all time, it has made a global name for itself, designing and refining medical equipment that can be sold more cheaply than the big international brands.
MR had staged an enormous jump in early August, popping from 30 to 36 in a week when its earnings came in ahead of expectation. The stock then spent August, September and October giving up small amounts of that huge advance, but staying above support at 33. The company’s earnings release after the market closed yesterday missed slightly on both revenue and earnings and the stock responded with a significant drop, falling from its Monday close above 34 to below 32.
Strangely, though, the correction in MR was relatively mild, and the stock bounced back from an intraday low near 31 to above 32, where it seems to be stable.
Mindray’s miss lowers my perceived IQ, but its relative calm demeanor leaves the issue of what to do with it in doubt.
Mindray missed and dropped only about 6%.
But fundamentals also matter, and Mindray’s strong product line and generally sound numbers are obviously leading some investors to see its correction as a buying opportunity.
We already had Mindray rated as a hold as its earnings date approached, partly as a response to its gradual decline from its August highs. If it holds up above 32, it will likely be able to repair its damage and eventually get back on the upward track. But as a growth investor, I would have to see evidence of the recovery before I actually did any buying.
In any case, I’d say that this stock illustrates the potential strengths of Chinese stocks, a group that has been in the doldrums for longer than I care to think about.
This undervalued group is showing signs of life, and I personally believe that this is the perfect time to start following emerging markets stocks again. The signs are there for the vigilant, and those who get back in before the neon signs go up will reap the benefits.
Editor’s Note: To learn more about high-potential emerging markets stocks and the proper way to handle them, click here now. Cabot China & Emerging Markets Report is the place to discover the top stocks in these fast-growing markets.
By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Market Report
From Cabot Wealth Advisory, 9/24/09 Sign up for free Cabot Wealth Advisory e-newsletter
Every investment choice is a compromise. Either you accept high risks in the hope of high gains, or you dial back your expectations and accept relatively small returns in exchange for increased safety.
I don’t think there are any exceptions to this rule. None. And if there were, I’m betting that the SEC would probably want to have a nice, long chat with whoever found it.
So my idea for today’s stock is a bit of a compromise. It isn’t the hottest Chinese stock on the market. But neither is it a boring Red Chip stock that you have to hold for years to get a good return.
The company is Mindray Medical (MR), which surely has one of the best company names ever. This Chinese manufacturer of medical devices started out in 1991, making knock-offs of ultrasound and other medical imaging machines. It took 10 years, but the company concentrated on R&D, and kept finding small, patentable improvements to existing technologies.
It used to be that the only markets for Mindray’s machines were the smaller regional and local hospitals and clinics around China. But the gradual improvements in both quality control and design coupled with inexpensive Chinese labor soon made the company’s devices attractive to international customers.
Today, China accounts for just 43% of Mindray’s revenue, with the U.S. contributing 16%, and 41% coming from the rest of the world.
Patient monitoring and life support systems are the biggest product line, bringing in nearly half of the company’s sales. Imaging systems and in-vitro diagnostic products each contribute about a quarter.
Mindray is a great example of a well-run company that has raised itself out of the low-quality, low end of the medical device market. By spending the money to create intellectual capital, the company has broadened its market. Q2 results showed a gain of 10% in both revenues and earnings, and the recovering global economy will likely bring back the much bigger gains that characterized 2007 and 2008.
The chart for MR shows an attractive six-week base at 31 and signs of a breakout in recent days.
Editor’s Note: Cabot China & Emerging Markets Report is your best source of advice when it comes to investing in Chinese stocks. In fact, Cabot China & Emerging Markets Report was the top performer of all investment advisory newsletters for the past five years according to Hulbert Financial Digest. If you’d like to own the top-performing Chinese stocks as they rocket ahead in the next bull market, I strong recommend that you join them. To get started with a no-risk trial subscription, simply click here. Information on Introductory Subscription to Cabot China & Emerging Markets Report.
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report
A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.