You don't always have to be a star to be a success. Ed McMahon? Career second fiddle. Scottie Pippen? Ditto.
Sometimes you can carve out a perfectly good niche for yourself by complementing and accessorizing the bigger, brighter stars. For small-cap medical device maker Merit Medical
Merit makes a variety of products used principally in cardiology and radiology -- catheters, inflation devices, guidewires, and the like. While many of the giants of health-care produce very similar products, Merit tries to focus on narrow specialty niches that are overlooked by the big boys.
Investors looking at the company's fourth-quarter report might wonder why I sound positive on this company. After all, sales were up only 12%, and earnings per share were down slightly from the year-ago period (due in part, though, to Sarbanes-Oxley costs).
While the fourth quarter may not have been scintillating, the year-over-year comparison was quite tough. What's more, while management acknowledged that it failed to achieve its own guidance for the full year, the results it did achieve were still sufficient to produce a return on equity of 18% and a return on assets of 14.5%.
Fools considering Merit Medical need to appreciate it for . well, its own merits. It's not a high-growth company like Kyphon
Prospective investors also need to appreciate that there are some risks here. As a mouse running around amongst elephants like Medtronic
For instance, in the past companies selling stents have often offered accompanying bundles of products (like catheters, guidewires, inflation systems, etc.) in order to capture market share. Should any big player get a bit more aggressive about essentially giving away these low-dollar-value goods, Merit could suffer.
Nevertheless, that has always been a threat, and Merit has coped with it rather well -- particularly by focusing on those niches where bigger companies just don't want to bother. In fact, Merit often works with some of these companies to make goods on an OEM basis (Kyphon, for instance, contributed $6 million worth of revenue to Merit).
Merit's stock has languished over the past year, in part because the company earned some demerits for a very poor third quarter, but this could be an interesting opportunity for patient value hounds who don't want to deal with the spicier ideas in the small-cap med-tech world. As long as investors don't confuse a Scottie Pippen for a Michael Jordan, Merit Medical could hold some merit for patient value portfolios.
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