Editor's Note: News just broke that the first U.S. case of Ebola has been confirmed in a patient in Dallas, Texas. The Sept. 30 announcement from the U.S. Centers for Disease Control and Prevention (CDC) sent "Ebola stocks" - the companies racing to get approval for treatment - up as much as 20% in after-hours trading. Keith Fitz-Gerald has been way out ahead of the story, tracking Ebola-related market developments for months for his paid members. Due to the importance of this breaking story, we're sharing his article and recommendations with all Money Morning readers.
As if ISIS, Gaza, and Ukraine weren't enough... now we've got to contend with an international outbreak of one of the deadliest viruses ever to threaten humanity - Ebola.
The virus kills 90% of the people who contract it. The World Health Organization (WHO) has declared the outbreak a worldwide public health emergency.
Yet we've seen this script before.
I don't mean to downplay Ebola. My point is: humanity has always struggled with pandemics, from the bubonic plague to bird flu. We always will. The "next Ebola" is already lurking somewhere out in the jungle. We can't know when it will attack or how to prepare for it. The only thing that's certain is we're going to have to deal with it, too.
From an investing standpoint, that means we don't need to spend a lot of mental energy worrying about what might be. Instead, we just need to continually seek out the best companies we can find based on a strict set of criteria, including expanding earnings, solid value, and globally recognized potential. Above all, we don't panic and we don't buy the hype. That's when you make the worst decisions for your wealth.
Indeed, the market is driving up Ebola vaccine stocks on nothing more than media hype - and then dropping them back down. Many of the experimental drug companies that might be working on an Ebola cure - Tekmira Pharmaceuticals Corp. (Nasdaq: TKMR), Sarepta Therapeutics Inc. (Nasdaq: SRPT), BioCryst Pharmaceuticals Inc. (Nasdaq: BCRX) - are being knocked around Wall Street like so many Ping-Pong balls. TKMR popped 42% in one session in August, only to drop 22% a few days later. (If some guy calls you from a boiler room pitching an Ebola stock, hang up. He's probably long and trying to unload it.)
Trying to pin down which company will engineer a breakthrough treatment is almost impossible. For every success, there are thousands of failures, and for the smaller biotech firms focused on these highly specialized experimental drugs, even the smallest setback can kill a company.
That's what makes this opportunity so powerful...
Instead of trying to guess which company is going to come through with a cure for the latest deadly disease, I recommend you concentrate on companies making the best medical testing, diagnosis, and drug delivery systems. These products are going to be absolutely crucial moving forward - not only for the Ebola outbreak, but for the "next Ebola," the next public health concern, the next big demographic shift, right down to the next simple outpatient procedure or doctor visit.
And I've got great news for you. We already own just such a stock, and it's likely to power sharply higher in the next 12 months, adding to the 65.33% it's already returned for my Money Map Report subscribers.
It's the most powerful re-recommendation I've ever issued...
Becton, Dickinson and Co. (NYSE: BDX) is a leader in single-use diagnosis, treatment, and instrument systems. Beginning with glass syringes and pioneering the production of hypodermic needles, the company now operates in three business segments that are logically oriented around how healthcare is delivered:
What I especially like about this business is that the vast majority of its products are one-time-use only.
That means the company is primed to receive re-orders every time a patient somewhere has blood drawn, gets a shot, has an operation, needs a specimen transported... and with viruses like Ebola, which are spread through contaminated medical equipment, the demand for such products is immense and growing all the time.
BDX has broad international exposure, with 59.22% of its overall 2014 YTD income of $6.24 billion coming from international customers. More specifically, though, the company is rapidly expanding into emerging markets. In Q3/2014, the company reported strong YTD emerging markets growth of 12%. China experienced growth of 20.9%, and Emerging Market Safety grew 18.0%.
That tells me BDX is expanding in the very same markets that could be hit extra hard by a growing Ebola outbreak - and, perhaps, just at the right time.
If the Ebola outbreak expands, it's likely to hit emerging markets harder than developed markets. Emerging markets are still scaling up the kind of highly specialized medical infrastructure that's already in place in developed economies.
In Africa, for example, public spending on healthcare is extremely low. According to a 2012 report by The Economist, sub-Saharan Africa makes up 11% of global population but gets less than 1% of global health spending. That's due to the lowest number of healthcare workers per population in the world; poor logistics for getting the equipment, medicine, and care to where it's needed; and a lack of clean water, sanitation, and adequate nutrition.
Even if Ebola doesn't spread, which I truly hope is the case, BDX still has a consistent revenue stream because people always need medical procedures - no matter where or how they fit into the economic and geographic puzzle. It's a "need to have" vs. a "nice to have."
In fact, over the last nine years, the company has experienced revenue CAGR of 5.6% to $8.05 billion in 2013. Earnings have grown 111.3% over the same time period to $4.67 a share by year-end 2013. Admittedly, 5.6% CAGR may not be as sexy as the latest social media darlings, but it's consistent - and I'll take "consistent" in an investment every time.
I tend to favor companies that are predisposed to breaking the rules. That's because innovation usually leads to competitive advantages, better maneuverability, and bigger gains.
BDX has a pioneering streak a mile wide.
During Q3/2014 alone, the company launched 12 new products and programs, including Morphine Sulfate Injection, USP (for ready-to-administer prefilled morphine shots), and BD Onclarity HPV-GT (a test for human papillomavirus in women).
I'm most excited about the BD Max System product line, which detects dangerous viruses, bacteria, and parasites - things like MRSA (methicillin-resistant Staphylococcus aureus), Salmonella, Escherichia coli, and Streptococcus ("strep") - by identifying their DNA. It was recently expanded to include Total Nucleic Acid (TNA) reagents too. The BD Max System is the first molecular testing solution to provide integrated and automated extraction, amplification, and detection of contagious diseases.
This is a big deal because the old process was very time- and labor-intensive - but now the entire process can be performed much more quickly and cheaply, and with less hands-on time.
For MRSA, it delivers accurate results in just two hours, versus two days. In preventing the spread of diseases like Ebola, that could make all the difference.
The BD Max System is just one product - and it's not yet able to test for Ebola itself - but it's one product that represents not only a paradigm shift in how molecular tests are performed, but also demonstrates management's ability to see inefficiencies in standard practices and develop groundbreaking solutions.
That's the kind of strategic vision that should keep BDX one step ahead of its competitors - and makes it a better pick than trendy "Ebola stocks."
Longer term, there's no question in my mind that future revenue growth will end up trumping historic growth because the company is always busy researching, developing, and marketing new products.
From a valuation perspective, BDX seems a little expensive right now, at 24.27x trailing 12-months earnings. But it's only 17.04x future earnings (based on FY/2015 estimates).
Plus, in a real vote of confidence, the company received 24 upward revisions in the last 30 days (for periods ranging from next quarter to FY/2015). That tells me Wall Street is finally catching on to what we've known since early 2012.
Another thing I like about BDX is management's commitment to increasing shareholder value. The stock delivers a 1.80% yield, and during Q3/2014 BDX repurchased $187 million worth of common stock, bringing the year-to-date repurchase total to $400 million. That's significant - in fact, $400 million represents 1.792% of current market cap.
We targeted BDX as part of the February 2012 Money Map Report. Since then, the stock has delivered a total return of 65.33% - and that was before the biggest Ebola outbreak ever.
More from Keith Fitz-Gerald: Despite what most politicians and central bankers think, we are not staring at a series of independent bubbles, but a single, massive, $1.5 quadrillion derivatives bubble that surrounds us all. We can get through and take our profits at the appropriate time, though - all it takes is a little moxie and a steady game plan...
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