Medical Action Industries (NASDAQ:MDCI) came across my screen yesterday on a breakout of the $14.50, which on the weekly chart is a clear inverse head and shoulders breakout, which occurred with a 9.4X surge in relative share volume, confirming a trend reversal.
After further research I decided that this stock is the perfect play for an aging baby boomer population. The Company develops bedpans, IV kits, waste bags, surgical headwear, sponges, walkers, canes, and a variety of other products for the medical industry. This is a Company that does not do anything "flashy", but is sure to see a solid boost in product demand, and should continue this move higher for quite some time.
Shares trade 15.5X forward earnings, 0.88X sales, 12.3X cash flow, and 11.5X EV/EBITDA, so it passes my test as a fairly good value. The Company sold off hard as crude oil prices spiked, blaming high shipping costs, so now with crude oil prices subdued, profits should rally. As feedstock prices fall, the price of Resin, another major cost of goods sold, is coming down sharply. The shift in pricing of it's goods sold will be a big boost to profits because it operates in low margin products.
The Company is a player in a $336B global medical device market, $90B US medical device market, and $71B US disposable medical products market. The industry is growing due to technological advances, an aging population, and an increased need for infection control. I also like the diverse product mix, with no segment accounting for more than 25% of 2009 net sales.
As a niche player int he medical devices industry with improving margins expected, and drivers for future growth, Medical Action Industries looks to be a great small cap investment, and a potential takeover target. The implied move from the technical breakout is to $23, 37% higher from current prices, but I can see an eventual return to 2006 highs of $33 in this pricing environment.
Disclosure: Long Medical Action Industries at $14.75