Looking into the Crystal Ball Part II

Anyone who reads our stuff regularly knows we usually lean right, politically. This is not a gloat session.

Obamacare, aka the Affordable Care Act, was crammed down our throats and then manipulated by executive orders in order to delay unpleasant results for election gains. The problem most opponents have with the law is the growth of government bureaucracy and increased taxes to combat the problem of sky high health care costs with no free market solutions or tort reform. The ultimate intent of the law to ensure someone stricken with cancer does not go bankrupt is noble and a great feature. However, freemarketeers believe in the long run that the free market will always be more efficient and effective than government run anything. But, as Sir John Maynard Keynes (father of Keynesian economics) stated, ‘In the long run we are all dead’. So, there has to be compromise somewhere.

There is no doubt the GOP will, at a minimum, attempt to modify or repeal Obamacare in some fashion. One item that more than likely will be on the table is the medical device excise which went into effect January 1, 2013. The tax is a 2.3% on all medical device manufacturers. The idiocy in this policy is that anyone who knows anything about economics realizes that this tax simply gets passed on to the consumer. Thus, the ‘Affordable’ Care Act ultimately makes something more expensive. We believe this one has the potential to be conceded by President Obama. With that said, it is time to look into a small cap play in this space.

InfuSystems Holdings, Inc. (NYSE – INFU - $3.49) is a leading provider of infusion pumps and related services to hospitals, oncology practices and other alternate site healthcare providers. Additionally, the Company delivers local, field-based customer support, and also operates Centers of Excellence in Michigan, Kansas, California, Texas and Ontario, Canada. InfuSystems is an up and comer in a growing industry.

All of our boxes are checked for INFU. A very small “short float” of 2.35% indicates that there are not many doubters. The short, intermediate, and long term very bullish EMA indicates that technical trends favor an accumulation phase. The simple valuation also indicates a buying opportunity with a big spread of the forward P/E versus the trailing P/E of 11 versus 26 and a five year PEG of just over 1. Finally, looking ahead to possible M&A activity in 2015, the Company currently has an Enterprise Value of just $115 million, which could make it an attractive target.

InfuSystems announces 3Q14 financial results Monday and has met or exceeded expectations four straight quarters. Look for a pop if this trend continues. INFU should run to $4.50 by the end of 1Q15.

Have a great day!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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