When the economy weakens, consumers look for bargains at the grocery store and the mall. For investors, market downturns can have a similar psychological effect. Luckily, periods of market weakness create plenty of bargains for frugal investors to choose from. But you can’t buy just any cheap stock — some of them simply won’t recover. So today’s recommendation comes from one of our contributing value investing experts,Cabot Benjamin Graham Value Letter Editor Roy Ward, who knows how to find value in good markets and bad. One of his latest picks is profiled below. The stock is currently trading just slightly above his maximum buy price, so for minimum risk, wait to buy on a decline of a point or two.
“ResMed, Inc. (RMD) designs, manufactures and distributes medical equipment and supplies to diagnose and treat sleep-disordered breathing such as apnea. Principal manufacturing facilities are located in Sydney, Australia, where ResMed’s initial products for treating apnea were developed in 1981. The company’s products are distributed in 70 countries.
“ResMed continues to focus on the further development of products to solve sleep problems. These range from snoring, often associated with apnea, to severe apnea, where the airway temporarily collapses during sleep, restricting breathing for 10 seconds or more. Interrupted breathing can occur several hundred times a night and affects about 20% of the adult population.
“ResMed has created rapid growth in the sleep-disordered breathing sector by educating physicians and sufferers about serious health problems caused by sleep disorders. Up to 90% of people who have existing problems remain undiagnosed and untreated. The vast number of sufferers offers many opportunities for ResMed to create 13.5% earnings growth during the next several years.
“RMD shares are undervalued at 17.8 times forward 12-month EPS compared to the company’s 10-year average P/E of 22.3. ResMed is a leader within a segment of the healthcare industry that is in its infancy. I expect RMD to increase to my Min Sell Price of 40.38 within two years. Max Buy Price: 28.36.”
- J. Royden Ward, Cabot Benjamin Graham Value Letter, June 2012