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Getting a Better Look at Volcano

Thursday, 15 Mar 2007 | 6:27 PM ET

Now that we’ve adjusted to the 200-point drop that hit Tuesday, and even had a chance to celebrate Mad Money’s second anniversary yesterday, we can return to our brand-new series on non-pharma medical stocks. Today’s pick? Volcano Corp.

First, some ground rules: Volcano’s a small stock, so use limit orders. And definitely don’t buy it afterhours – wait until next week!

Remember that right now everything medical is good. You don’t stop getting medical treatment because of a bad PPI number, especially the kind of treatment Volcano’s involved with. It makes IVUS (intravascular ultrasound) catheters, a technology that allows doctors to take better pictures of the insides of arteries.

Volcano
A great non-pharma stock pick

IVUS has been around for a while, but it’s underutilized. Only about 10% of all coronary procedures use IVUS. Instead doctors go with angiograms to look at arteries. But thanks to the current controversy over drug-coated stents, there has been increased need for more accurate imaging inside arteries – more IVUS catheters, more business for Volcano.

The company works like Gillette, following the razor/razorblade business model. Three quarters of their revenues come from the disposable catheters, not the machines. Their biggest competitor is Boston Scientific, which would be a net plus for any company, but it’s even better now that BSX is distracted by the stent controversy.

The company also has great partners in Johnson & Johnson and General Electric (CNBC’s parent company). JNJ has a 4.6% stake in Volcano and is one of its three distributors in Japan. GE exclusively offers one IVUS machine as part of its Innova Catheter Lab System. The deal expires in the middle of the year, but renewal could send the stock up.

You want a play on the coated-stent controversy? You want some non-pharma exposure to the medical sector? Then the bottom line is Volcano. If you don’t like the sound of this one, remember, it’s part of a series – and we’ve got more coming just like it.

Questions? Comments? madmoney@cnbc.com

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BSX
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GE
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JNJ
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VOLC
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