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OTC Journal Members:
Healing is a matter of time, but it
is sometimes also a matter of opportunity.
Hippocrates, 460 BC
DIO)- Under or Over Performer?
Recently we've gotten lots of inquiries
Diomed, one our of our core featured companies. The stock
has been down ticking every day since late April, and investors are starting
to wonder if there is an undisclosed problem with the EndoVenous Laser
It's puzzling when one considers
investors could not get enough of this stock when it first came public
in mid February. The stock traded up to the $9 level twice on huge volume
in its first two weeks of trading, and now there is little interest with
the stock just under $3.
In fact, nearly all markets have
been suffering horrendous losses over the past six weeks as the "Crisis
of Confidence" deepens in investor psyche. Corporate excesses of the
90's have come back to haunt stocks. Fear levels are at a new all time
high, as new reports of corporate malfeasance come to light nearly every
The Enron scandal has caused
a cascading effect, and the actions of corporate executives and elite brokerage
firms over the past decade are now being examined under a microscope. Corporate
executives who were once awarded Rock Star status by Wall Street money
managers and the media are being indicted, and investors are stunned by
the arrogant personal use of company funds and the flagrant abusive accounting
practices in order to embellish profits.
All this has led to a climate which
is the diametric opposite of Alan Greenspan's famous "Irrational Exuberance"
description of the market. We are now in a climate of "Irrational Pessimism",
where the market is driven down daily for emotional reasons. Market conditions
are heaven sent for contrarian investors with a long term outlook.
(AMEX: DIO) Versus the Biotech Index
The chart we have chosen to illustrate
the point of today's newsletter shows the price performance of Diomed
in green, and the Biotech Index in blue.
Since mid April, both have fallen
off a cliff about the same degree. The Biotech index has eroded 33% since
the third week of April, and the value of Diomed has dropped about
36%. Therefore, each have lost about a third of their value in the last
Since the first of June the erosion
in the Biotech index has accelerated much more rapidly than Diomed,
suggesting that less institutional participation in small cap stocks equals
less stock for sale. Individual investors are thinking longer term.
The Biotech index has, in fact, been
absolutely decimated over the past two months. Technicians are looking
for the NASDAQ to retest the September 21st low of 1423. However, the Biotech
index already blew through its September 2001 low of 415.55 and closed
today at 361.90, a full 13% lower than the post 9/11 sell off.
Biotech stocks generally trade with
rich valuations as breakthroughs in drug therapies can yield dramatic profits
overnight. This makes the biotech sector vulnerable to steep declines in
value during declining markets.
This sector will also rebound more
dramatically as valuations improve when buyers return.
Happening at Diomed (AMEX: DIO) Today
Investors were clambering to buy
this stock between $7 and $9 back in February because of the perceived
potential of their revolutionary new treatment for varicose veins. EVLT
has the potential to grab significant market share from the current favored
Diomed achieved about $7 million
in sales in 2001. We expect the company to achieve $15 to $20 million in
sales this year, with numbers accelerating rapidly in the 3rd and 4th quarters.
More importantly, if Diomed's EVLT can replace 10% of the
stripping procedures done annually for varicose veins, the company could
enjoy $50 million in annual sales by 2003.
There has been no substantive news
coming out of the company concerning the roll out of their FDA approved
revolutionary new treatment for varicose veins, which is no doubt contributing
to the sell off in the stock. To learn more about EVLT, please read
1st edition, or visit the company's EVLT web site at www.evlt.com.
Diomed is in the process of
filing a registration statement with the SEC, and therefore is in a regulatory
quiet period. Management has informed us that they will not provide any
projections to investors at this time. Instead, they intend to allow June
quarterly results to speak for themselves. The June quarter is the first
time investors will see any hard numbers associated with the EVLT
commercial introduction, as the FDA approval for this product did not come
until the end of January, and marketing materials were not approved by
the FDA until February. We understand there is a very high level of activity
at the company, much stronger than originally anticipated.
This stock is extremely oversold
and due to bounce soon. The entire Biotech index is in the toilet right
now, and many stocks within the sector will rebound like coiled springs.
For long term investors the current
level of the stock is heaven sent. Your returns will reflect the success
or failure of EVLT. Short term investors also have a high probability
of rewards from the current levels. The market is very over sold and due
for a relief rally. Biotech stocks have suffered devastating losses in
the past two months, and could rebound rapidly.
In previous editions we told you
we would try to identify exciting, low risk entry points for the stocks
Diomed seems to have found a bottom, and now could be
the most favorable time to grab up shares. Long term investors could enjoy
enormous returns, and the stock is probably ready for a short term bounce
for traders. Looking at the facts, the stock is not under or over performing,
it's simply traded down to ridiculous levels along with it's entire peer
We still believe the stock could
trade to $10 this year. In order for that to happen, the company
needs to demonstrate EVLT is rapidly gaining market share, and general
market conditions need to improve. The odds are in our favor from today's
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