Thursday, January 3, 2013

Top Stocks for 2013: #1 OSIS

OSI Systems provides the screening equipment for baggage, parcels, people and trucks to airports, docks and truck stops across the world. As travel and dangerous technology becomes more available to the world, there will need to be many more places incorporating screening equipment such as schools, stadiums, malls and so on.

The stock has recently sold off from around $80 to $50 due to an accusation of malfeasance made to the TSA about machine performance. The safety performance is not the issue (3:00 mark), it was the privacy software that turned the full body scan images into stick figures. During the hearing, the TSA agent says that he suspects OSIS manipulated the operational test but confirms that there were independent studies conducted that verified OSIS claims (2:10 mark). Even if TSA does eventually find proof, both Oppenheimer and Benchmark believe the impact on OSIS would be minimal.

OSIS has a FPE of 16, PEG of 1, little debt, and an EPS expected growth rate of over 25% for the next 5 years. With these fundamentals and being the leader in an industry I expect to grow significantly this year and the next several years, I think OSIS has potential to be a 10 bagger in the next decade from its current valuation of $1.3 billion. 2013 end of the year target is $120, an 85% rise from current levels. Stop beneath $60 then look to reenter.


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