There’s nothing like a catalyst to drive up a stock price, yet Inverness Medical’s potential purchase of Cholestech is only one reason to own IMA, Cramer said.
Sure, adding Cholestech’s cache of cardiology diagnostics to Inverness’ own pipeline of pregnancy, fertility and other tests puts IMA in a “whole new category,” according to Cramer. But Inverness is also a play on what he sees as a business with tremendous growth potential for years to come: healthcare cost containment. When diseases are caught early and treated effectively, that amounts to huge cost savings, Cramer said. That’s where Inverness comes in.
On top of this, Inverness has a nice 50/50 joint venture with Procter & Gamble that gives IMA $300 million in cash to pay off debt from the acquisitions it has been making. Being able to harness P&G’s massive marketing and distribution capabilities doesn’t hurt either. ClearBlue, the digital pregnancy test that came out of this JV, is already a market leader, and Cramer expects an over-the-counter strep test next year.
Actually, Cramer said he wouldn’t be surprised if P&G bought Inverness, or if Johnson & Johnson did, for that matter. In fact, JNJ has a history of buying diagnostics companies, he said, and a merger would work well for both of them.
The bottom line? IMA is a great stock to own in this economic downturn, Cramer said, and it’s also a great play on the long-term healthcare cost containment story. “My charitable trust owns it," he said, and "I regard that as a great endorsement."
Jim’s charitable trust owns Inverness Medical.
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