In this market it is quite difficult to find stocks breaking out to new highs, but I found an interesting play in the small cap medical devices sector that is doing just that. This kind of strength is especially impressive given the amount of carnage that has taken place in the broader market, especially in the small cap space. Let’s delve into the chart and some of the fundamentals of Wright Medical Group (WMGI).
Wright engages in the design, manufacture, and marketing of devices and biologic products for the extremity, hip, and knee repair and reconstruction. The company also provides surgical solutions for the foot and ankle market. It is a small cap stock with a market capitalization of just $668 million.
The Chart
As you can see, the stock has staged a multi-day breakout on huge volume recently. This is very bullish, especially in a rocky tape. The 50 and 200 day moving averages were blown through on the upside, and those will become solid support now. This breakout also cleared a nice multi-month base that built between $13 and $17.
One of the reasons the stock rallied of late was the naming a new CEO five months after the previous one resigned. The new one is Robert Palmisano and he brings a lot of good experience in medical devices to the helm. He was recently the CEO of ev3, which is also a device company and the stock more than tripled in just two years with him in the lead. Clearly Wall Street is optimistic that he can continue to work some magic at Wright.
I like the balance sheet, which is flush about $4.50 per share in cash. If you strip out the cash, the stock is pretty cheap on next year’s numbers. Its forward p/e is about 15x ex cash, which isn’t unreasonable for a company that is growing nicely. I think the stock has a good chance of hitting $22 in the next 18 months.
A Small Cap Breaking Out? is an article from: 
