Hedgeye is removing Hologic (HOLX) from Investing Ideas today.
CEO Keith McCullough believes that US small and mid cap stocks, like HOLX, are in a bubble. Additionally, Health Care sector head Tom Tobin sees some cracks in his thesis on HOLX, and says that valuation combined with a weak revenue line this quarter could be a short term negative for the shares. Tobin says he has to make some aggressive assumptions to model revenue into the company’s $630 to $640 million range.
Tobin stresses the importance of the September Tomo Tracker results (Hedgeye proprietary data), which will be key to the company’s quarter. Additionally, subsequent months of placement data before and after the reimbursement decision in November, which is still controversial, will be THE critical data to know and watch. Tobin says that over the long term, the stock could double, though.
Here’s a sneak peek behind the scenes inside of Hedgeye as we were evaluating whether or not to remove HOLX from Investing Ideas. It was a debate between the coach, Keith McCullough, and the player, Tom Tobin. Tobin wrote this note below discussing HOLX:
[At a fund] I would be telling my PM (portfolio manager) to take down the position, but not eliminate it.
Embracing the uncertainty of how the data leans (high valuation, +performance, possible negative surprise on revenue) is the key here.
Player: I am sitting on some good performance, I like the long term, but I see some short term risk. Data point 1, data point 2, etc….
Coach: Let’s book it, what I see from my seat doesn’t look good for the name. I hate this market and want to take down long exposure.
Player: But it could double from here! Be patient, you are overreacting. I am just covering myself by sounding an alarm. I may be misreading how the street will react, and there is always a chance I am being way too worried about what other people think.
Coach: Relax. We’ll buy it back.
Player: That never happens. If I am wrong, the stock will be up and you’ll wait for a pullback that never comes and all of my research gets wasted. I put so much into this it will be heartbreaking to see us not participate.
Coach: OK. Let’s sell half, more if it rallies into the number, less if it sells off. Good?
Player: Phew, that sounds good. If they puke the quarter we can double down. I’ll keep you posted as I update key data.