Nancy Zambell's UnTapped Opportunities Issue #9, March 2, 2006
Spring is in the air here in Tennessee and I can’t wait! I am just chomping at the bit to be digging in the dirt, and am looking forward to a new season of planting.
Our winter hasn’t been bad, but we have seen some wildly ricocheting temperatures – 73 degrees one day, then 20 the next. Result: Our hospital has been full of very sick people, and even I – who rarely gets ill – succumbed.
Some of you have called and written asking where your February issue is. I appreciate your following up and love knowing that you are eagerly awaiting your next issue. I didn’t publish a February issue, as the month found me on the road to the Orlando Money Show, which – as usual – was very successful.
However, when I returned, I became very ill and was in bed for the better part of 3 weeks. But the good news is: I am on the path to recovery now and feeling much better –
I thank you for your concern. And please don’t worry about your subscription being cut short – you will, of course, receive the full number of issues to which you subscribed.
And while my health is looking up, so is the Dow Jones! We finally surpassed – and stayed above – that so-important 11,000 marker on the Dow! And although we have continued seeing volatility in the index, it is holding its own. I consider that a very good sign, considering that economic uncertainty, accompanied by the mega dollars we are spending in Iraq and Afghanistan, continue to plague the market.
The emergence of the new Fed chairman has not done much to allay interest rate fears, oil is bouncing up again and several housing markets are beginning to mellow, as a result of their overly-speculative price appreciations.
But not all news is bad: 4th quarter GDP was revised somewhat higher, the FED’s inflation measures were revised downward, and the personal consumption expenditures index increased at a 2.1% rate, less than the expected 2.2%.
One insight that many investors often forget: Markets experiencing this type of volatility often breed some of the best hunting grounds for undervalued stocks. Many of you who are long-term subscribers know that we have frequently made money on bank and REIT stocks when rates were going up, and no analyst on Wall Street would touch them.
Likewise, while tech and biotech investors were licking their wounds back in 2000, we were raking in cash on undiscovered stocks like Franchise Finance, Western Properties Trust and Tosco, whose missions were very understandable and decidedly low-tech, yet very profitable.
And now I’ve found another company that fits the same mold: Undiscovered, undervalued and with a simple, yet very profitable concept.
The company is USANA Health Sciences, Inc. (USNA: NASDAQ), a small cap company with superb growth and tremendous potential
USANA Health Sciences Inc.
Today’s closing price: $43.00
Market cap: $798.4 million
Shares outstanding: 18.63 million
52-week range: $37.30-$54.10
EPS estimate for: (Q) 3/06: $0.52
12/06 (A): $2.22
12-07 (A): $2.62
My target price: $58
Recommendation: Buy 100 shares, up to $44.50 per share
Company Headquarters: 3838 West Parkway Blvd., Salt Lake City, UT 84120
Corporate Officers: Dr. Myron W. Wentz, Chairman & CEO
Dr. David A. Wentz, President
Gilbert A. Fuller, CFO
For Investor Information: Riley Timmer, Investor Relations (801) 954-7100
On the Internet:
USANA is no newbie on the block. The company was founded in 1992 by Dr. Myron W. Wentz, a scientist known as a pioneer in cell-culture technology. Dr. Wentz had previously founded Gull Laboratories – back in 1974 – to develop viral diagnostics, and subsequently became world-famous for developing the Epstein-Barr virus assay, still the gold standard for diagnosing that virus.
During his tenure at Gull, Dr. Wentz had to grow healthy, functioning cells in order to replicate viruses so that he could create assays to diagnose them. Along the way, he found that by giving the cells the right nutrients, he could keep them healthy indefinitely.
That process gave rise to a tremendous interest in the ongoing health of human cells. Consequently, after almost 20 years, Dr. Wentz decided to focus on the fight against degenerative diseases – at the cell level – and sold his interest in Gull to launch a new business. Result: USANA, a company created around one central theme: Using nutrition to correct essential nutrient deficiencies, as a way to combat these diseases.
And based on the science of cell-culture, he has created a very nice niche that has wide appeal – especially as life spans are growing longer and we baby boomers want to live those extra years in the best health we can muster.
USANA’s nutritional line of products account for some 82% of the company’s annual revenues
Our federal government defines the “essential” vitamins and minerals that a human requires for proper cell function as 13 organic compounds and 19 inorganic elements.
USANA has expanded that definition to include comprehensive vitamins, antioxidants and mineral formulations with more than 40 active ingredients. The company’s product line includes vitamin and nutritional supplements for every age – progressing from childhood through the teen years, then into our adult years. USANA has also enhanced its line by offering Optimizers and Micro-Optimizers – more targeted supplements and healthy convenience foods, including powered drink mixes and nutrition bars.
The company’s second product line includes personal care items that provide topical nourishment, moisturization and protection for skin and hair. And something that I really liked – especially since I am allergic to many popular skin products – is the fact that USANA doesn’t use any chemical preservatives in its products. Instead, the company combines botanicals, antioxidants and active ingredients to extend the shelf-life of its personal care line, while keeping the products fresh.
And of course, there is no end in sight to the growth of this line. After all, we ladies love to spend our money on the eternal search for “young” skin, and USANA has a wide array of offerings to choose from. They include cleansers, toners, eye nourishers, polishers, masques, shampoos, conditioners, body nourishers, anti-aging formulations and shower gels – something for everyone!
USNA's revenues continue their steady rise
($ in millions)
Network marketing is the key to USANA’s selling success
The company sells its products to more than 160,000 customers in the US, Canada, Australia, New Zealand, Hong Kong, Japan, Taiwan, South Korea, Singapore, the UK, Mexico, and the Netherlands.
And it owes a large part of its success to the growing network of home-based distributors who sell products directly to customers, as well as the company’s expanding foundation of preferred customers. Result: Very nice margins and low overhead, which translate to more dollars to USANA’s bottom line.
In addition, USANA has built a very nice, growing business in which it manufactures premium personal care products for private-brand customers. This contract manufacturing segment accounts for some 77% of the company’s personal care line revenues.
USANA maintains its cutting-edge product development by stringent R&D and continuous product innovation. And that dedication shows in the financial strength of the business.
Earnings per share are on a solid upward trend
($ per share)
Record results for 2005 are a sign of good things to come 2005 was an excellent year for USANA. For the company’s fourth quarter, revenues jumped 15.7%, to $86.9 million, while earnings per share edged up 17.4%, to $0.54. And for the full year 2005, sales set a record -- $327.7 million, a rise of 20.1%, while EPS soared 26.7%, to $1.98.
Sales were up across the board in every region, except South Korea. North American sales increased by 22.9% and the company’s functional foods segment expanded to 11.6% of total revenues for the 4th quarter.
For the past three years, the company’s growth has been sterling, with sales expanding by 34.8%, and EPS rising by 68.7% -- a much better record than its competitors.
And USANA’s prospects for 2006 are healthy. The company expects sales and earnings growth of 15-20% for the year, which should lead to a continued march to handsome price appreciation.
USANA’s financials are strong, with margins that handily beat its peers, no debt to speak of, and superb operating cash flow – all fabulous advantages that give the company endless potential for growth.
USNA Industry S&P 500
P/E 21.4 24.2 21.6
Sales gr. TTM (%) 20.1 11.6 16.2
Sales gr. 5 yr. (%) 21.6 7.6 9.7
EPS gr. TTM (%) 31.0 8.1 19.9
EPS gr. 5 yr. (%) 68.6 14.3 14.9
Op. Mrg. (%) 17.8 16.7 20.7
ROA(%) 47.9 10.4 7.9
ROE (%) 70.7 29.6 19.8
Even without the company’s stupendous growth prospects, the shares are undervalued, in comparison to its competition, and to its own trading history. Add in the potential for sales and earnings expansion, and you have a recipe for excellent price appreciation.
5 reasons to add USANA to your portfolio:
1. Significant opportunities to grow in expanding international and domestic markets
2. Excellent history of bringing top-line growth to the bottom line
3. Demographics bode well for significant product and profit expansion
4. Strong insider ownership of the company’s shares
5. UnDiscovered! Institutions own just 51.5% of USANA’s shares and just 3 analysts follow the company’s stock.
I recommend that you purchase 100 shares of USANA at a price no greater than $44.50 per share. And I suggest that you keep in mind a stop-loss of 20% less than your purchase price.
Cirrus Logic continues to develop cutting-edge products. The company recently announced a new analog volume control integrated circuit for use in high-end consumer and professional audio applications. This chip reduces the need for external components and provides a more compact design which reduces the costs to the company’s customers. Cirrus also teamed up with Genesis Microchip to create a reference design for
High Definition mainstream audio/video receivers (HD-AVR), a product that is being promoted to simplify user set up and interaction. That is always good news to me – an admitted technophobe who has a hard time figuring out which remote controls which appliance! Cirrus’ shares had a nice gain this month, but they continue to remain at a buyable level. Buy up to 10.
Synovus raised its quarterly dividend by 7%, to 19.5 cents. The company is still in the buy range. Buy up to $30.
Craftmade declared a dividend of 12 cents per share – its 48th consecutive quarterly cash dividend. Buy up to $19.50.
Boyd Gaming announced more details of its Borgata expansion plan. The company will build a $325 million upscale hotel tower named The Water Club at Borgata in Atlantic City, scheduled to open in 4th quarter 2007. Boyd’s $200 million first phase expansion is scheduled for completion next quarter. It will include three fine dining restaurants by famous chefs Wolfgang Puck, Michael Mina and Bobby Flay. The company’s New Orleans’ Treasure Chest Casino brought in $16.9 million in January, setting the stage for Katrina-ravaged New Orleans to get back on its feet. All in all, riverboat casinos in that city took in $41.5 million in January, significantly more than January ‘05’s $24.4 million intake. The shares are very undervalued at this level. Buy up to $50 per share.
Company Symbol Date
OUTD 4/22/05 200 $14.50 $13.10 $30 Hold
CRUS 8/8/05 100 $7.39 $8.26 $15 Buy
SYN 9/15/05 200 $28.20 $28.07 $37 Buy
CRFT 10/13/05 200 $19.26 $17.95 $25 Buy
BYD 11/21/05 100 $48.47 $42.76 $65 Buy
VFH 1/06 100 $57.30 $58.00 Buy
VDC 1/06 100 $56.22 $56.93 Buy
Coming Attractions: The Las Vegas Money Show
It’s time to think about registering for the Las Vegas Money Show, to be held, once again, at the beautiful Paris/Bally’s resorts. The dates for this year’s show are May 15-18, 2006.
My schedule for workshops is as follows:
Tuesday, 5/16/06: 11:30am-12:15pm; 5 Ways to Find Untapped Opportunities in the Stock Market
Wednesday, 5/17/06: 7:45am-8:30am; Investing Without Spending a Fortune – DRIPs, DSPs, and ETFs
Thursday, 5/18/06: 9:20am-10:20am; Income Investing
To register online: http://www.lasvegasmoneyshow.com/MS/lasVegas/main.asp
Or, just call 1-800-970-4355 and mention that you are a subscriber to UnTapped Opportunities. I hope to see you there!
Fax: (931) 484-1383