Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Opko Health's CEO Telling You to Buy?

Famed money manager Peter Lynch told us executives can sell their stock for any reason but typically buy only for one: They think the price is going to go up!

Today I'm highlighting medical device maker Opko Health (NYSE: OPK  ) , which has seen its chairman and CEO buy nearly $1 million worth of stock in the past week and has purchased some $14.6 million since the middle of June. These aren't option grants but rather purchases made on the open market just like you and me.

Opko Health Snapshot

Market Cap $1.3 billion
Revenues, TTM $32 million
1-Year Stock Return 6.2%
Return on Investment (8.0%)
Dividend & Yield NA/NA
Recent Price $4.45
CAPS Rating (out of 5) **


Although following the lead of insiders can be profitable, I still recommend you do further due diligence to determine whether this stock would make a good addition to your own portfolio. So this isn't a call to buy, but just the inside track on a company you might want to check out further.

Putting your money where your mouth is
Is it a belief that his company is undervalued that keeps Opko Health Chairman and CEO Philip Frost buying shares even as prices decline, or is there some other ulterior motive? It would certainly seem to be an indication of a belief in his company's future that he gobbles up shares on a regular basis, and it's often considered a bullish sentiment when insiders continue to buy even as the stock continues to fall.

Maybe he's just trying to counter the significant short selling going on with his stock, which has a sky-high 43 days to cover representing 23% of the public float (The Motley Fool believes anything over seven days is generally considered to be a lot, but even shorting Fools would be worried about these levels, since any uptick could lead to a massive short squeeze). In short, someone's going to come out of this with a smile.

A taxing decision
In the second quarter, Opko enjoyed a 21% increase in revenues, as it made several acquisitions over the past year that contributed to the total, but losses doubled to $0.04 a share, which is probably what weighs most on investors' minds. The medical-device maker can't seem to gain the traction needed to get ahead.

There's also a looming time bomb ticking for all device makers as, President Obama's health-care reform law imposed a 2.3% excise tax on medical-device sales that goes into effect on Jan. 1. It's estimated the tax will raise $30 billion over the next decade.

Getting ahead of the curve, Boston Scientific (NYSE: BSX  ) built an R&D center in Ireland and announced it was eliminating 1,200 to 1,400 jobs and moving them to China because of it, while Stryker said it's cutting its workforce by 5% and restructuring its business to save $100 million ahead of the tax. Privately held Cook Medical says the bottom-line impact is actually an additional 15% tax on actual earnings and that it expects to see its tax burden rise 50% next year. Zimmer and Covidien have both laid off hundreds of employees as a result of the pending tax.

Opko does have new products coming to market, such as a new Alzheimer's diagnostic test that it's partnered with Bristol-Myers Squibb (NYSE: BMY  ) and it was recently awarded a contract by NASA to implement its point-of-care diagnostic platform -- which can return blood results in just 10 minutes -- for use on the International Space Station. New taxes can be burdensome, but companies have to also deal with the here and now of their business, too.

Yet perhaps Frost is not particularly concerned, since some investors believe he may be setting Opko up to be sold. He did so previously, selling Ivax Pharmaceuticals to Teva Pharmaceuticals (Nasdaq: TEVA  ) , where he also serves as chairman, and he sold Key Pharmaceuticals to Schering-Plough before Merck (NYSE: MRK  ) acquired it.

Still a risky bet
Yet risks do abound. For all of Frost's investment, the company itself still bleeds cash and has only turned in two profitable quarters in its history. Although I see the potential for a short squeeze boosting its stock price at least temporarily, I find it hard to see any gains being sustained until its operations become more firmly entrenched. With a big tax bite looming as well for it and other medical-device makers, it seems a risky proposition. Of course, by that time, Frost may have sold the company and moved on, but I'd hold off on making any moves here.

You can tell me in the comments box below whether you think the chairman is setting Opko Health up for a sale or whether its new products will be enough to offset any tax that comes due.

On the inside track
Medical-device makers like Opko offer investors an interesting opportunity. You might want to read The Motley Fool's special premium report covering MAKO Surgical and learn all you need to know about the company, its opportunities, and risks. Get your copy of the report, and the ongoing coverage it will offer, today.

Fool contributor Rich Duprey owns shares of Boston Scientific, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Zimmer Holdings. Motley Fool newsletter services have recommended buying shares of Covidien. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2003954, ~/Articles/ArticleHandler.aspx, 5/24/2016 8:23:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated 11 hours ago Sponsored by:
DOW 17,492.93 -8.01 -0.05%
S&P 500 2,048.04 -4.28 -0.21%
NASD 4,765.78 -3.78 -0.08%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/23/2016 4:04 PM
OPK $10.05 Down -0.10 -0.99%
Opko Health, Inc. CAPS Rating: ***
BMY $70.40 Down -0.37 -0.52%
Bristol-Myers Squi… CAPS Rating: ****
BSX $22.36 Down -0.01 -0.04%
Boston Scientific… CAPS Rating: ***
MRK $54.92 Down -0.19 -0.34%
Merck & Co., Inc. CAPS Rating: ****