While we research and position clients for many economic themes, one we continue to see playing a pivotal long-term role in investor portfolios is the escalating cost of healthcare. The U.S. healthcare system has 11,000 new people qualifying for Medicare every day for the next 19 years. The reality of this demographic cost burden is forcing the U.S. to find and embrace more cost-effective value based health care solutions.

Over the past several years, we have conducted significant research into unique healthcare equipment and service providers. Our goal has been to uncover companies that have been and will continue to benefit from this powerful trend. In the past 2-years we have selectively recommended three stocks. The first was Nasdaq-listed home healthcare provider, Almost Family, Inc. (AFAM:NASDAQ). KeyStone recommended the stock at $36.91. Within a year, Almost Family was acquired at a 67% premium by LHC Group, Inc. (LHCG:NASDAQ).

Our next recommendation, via our discovery research in the U.S. was a smaller, profitable and growing business Zynex Inc. (ZYXI:NASDAQ). Zynex is a developer and marketer of medical equipment specializing in doctor prescribed electro-therapy devices. At the time (late 2017/early 2018), the stock traded at $3.00 and on the OTCQX market.

Since this time, the company has posted two consecutive years of record revenues and profitability, graduated to the Nasdaq, paid us a solid dividend, and its shares have jumped to close in the $7.15 range, up 138%.

While the stock is no longer cheap, the growth path ahead for the business remains robust. In 2018, Zynex added approximately four new sales reps per month, mostly in the last quarter of the year. In 2019, the company is on track to add 10 new reps every month. That pace should have the company boasting 250 sales reps by the end of 2019, with 100 reps being independent pre-2018 sales reps and 150 being new direct sales reps, all added in 2018 and 2019. The company targets roughly $1.0 million in revenues annually from each rep, once they are up and running (approx. 3-6 months). Over the next 5-years, management is targeting 400 reps in total.

If the company hits these targets, Zynex has the potential to increase revenues from the current $32 million range to between $200 and $400 million. There are plenty of risks on the way to these type of gains and the increase in cost structure will likely shrink margins as new sales reps take time to be productive near-term. But, the balance sheet is strong, the market is ripe for continued growth, and the structure of the business is solid.

The company has already issued solid growth guidance for its next quarter estimating revenues growth of roughly 28% to between $9.5 million and $10 million, EBITDA between $2.3 million and $2.8 million and earnings per share around $0.07.

We see the shares as attractive on 10% pullback. Despite more than doubling in 2019 alone.

The final company we highlight is Viemed Healthcare Inc. (VMD:TSX).

Viemed is a company we have recommended at lower levels to Insider Edge clients, to our clients in May of 2018 at $3.85 and twice on Money Talks at $5.00 and $5.75.

Industry: Medical Equipment Service Provider

Recommended: May 2018
Recommendation Price: $3.85
Current Price: $7.90

Market Cap: $300,813,252

Shares Outstanding: 37,838,145

Fully Diluted: 40,130,590

Operational Summary

Viemed, through its wholly-owned subsidiaries, Sleep Management and Home Sleep, is a participating Medicare durable medical equipment supplier that provides post-acute respiratory care services in the United States.

In layman’s terms, the company places respiratory therapist inside the home to treat patients with very sick lungs. Many of these patients are unfortunately at the end stage of their life, at a time when they are most likely to visit the hospital. Our service prevents these hospital readmissions from occurring. The primary disease treated is (COPD) or chronic obstructive pulmonary disease. With almost 25 million Americans reporting that they have been diagnosed with COPD, it is the country’s 3rd largest killer behind cancer and congestive heart failure. The company provides a solution for people who suffer from this debilitating disease. Viemed uses non-invasive ventilators (NIV) which allows us to ventilate the patient with a mask versus forcing them to be in the bed incubated – the quality of life is better, and the healthcare costs decrease.

Quick Update

Viemed recently reported another record set of quarterly results with revenue growing 45% $20.4 million and EBITDA rising 27% to $4.8 million. The 45% growth rate was an acceleration from the previous year. Revenue was primarily driven by a 36.5% growth in the active patient count. Ancillary revenue (beside NIV) helped drive revenue per patient to a record level ($12,800 annualized).

Q1 2019 Notes

• From a EBITDA perspective, Viemed reported a 23% margin. The figure was slightly lower than in previous quarters. However, VMD continues to hire in advance to prepare for future growth. To this end, payroll and employee benefits were 34.9% of sales versus 30.3% in Q4 and 30% average for the year. As revenue grows throughout the year, management expects this ratio to drop and EBITDA to expand. In fact, management guided to a higher Q2 margin profile and expects to average the year closer to historical averages (approx. 6% margin).
• Viemed’s balance sheet remains strong with $7.4 million in cash and an unused $10 million credit facility.
• Veterans Hospital (VA) Opportunity – Viemed has made its initial inroads into the VA. The company believes there are likely 200,000-600,000 patients who could benefit from NIV therapy (veterans have a higher likelihood of COPD than the general population). While Viemed has roughly 10 patients at 4 VA hospitals, it is believed this huge opportunity could come to the fore in the mid-term future.

Risks – Viemed operates in a highly-regulated segment.  The company subject to all the risks and uncertainties of companies competing in the health care market. The business is highly regulated and government entities provide reimbursement for a portion of the services provided to Viemed’s customers. In recent years, all payors have sought ways to control the rapid growth of health care spending. These have included restrictions on health care utilization and efforts to reduce prices charged for services. We would expect these pressures to continue in the future and it is impossible to predict the impact they will have on Viemed’s business. Medicare/Medicaid Concentration – Medicare and Medicaid currently account for about 75% of Viemed’s business and a combined total of 56% of accounts receivable. Although there are significant benefits around Viemed’s service in the interest of Medicare and Medicaid, there is still risk of losing these revenue streams resulting in a significant decrease in recurring revenue.

Conclusion

The potential market for NIV is large and, despite its growth, Viemed is only scratching the surface. In fact, the entire NIV market penetration is less than 10% of its potential. As physicians and care givers become aware of the clinical efficacy of the therapy, there is potential that the referrals from them could snowball. A recent clinical study undertaken by KPMG showing the positives of the company’s in-home NIV strategy has just been started to be marketed by Viemed. Dissemination of that report should dramatically accelerate awareness and recruitment of patients. Additional products (outside of NIVs) offered by Viemed including vests are starting to contribute to revenue. With its infrastructure in place (Respiratory Therapists and Registered Nurses), it appears the company can provide more in-house services to the same client. The product diversification strategy could not only reduce risk but grow its brand as a one-stop service company.

Given the emerging track record of strong organic growth, from an Enterprise Value to EBITDA or EV/EBITDA basis, we believe Viemed should trade in the range of 12.5 times 2019 EBITDAe. We model for a base case of 28% adjusted EBITDA growth in 2019 producing roughly US$24.14 million, or CND$29.82 (CND$0.79 per share). As such, given the company’s clean balance sheet and solid net cash position, we increase our fair value over the course of the next year to the range of $10.25 (up from $9.50 in our latest update report BUY report), or 28% higher than its current share price.

Ryan Irvine is the founder of Keystone Financial and www.keystocks.com

It is wildly unpopular to be positive in British Columbia these days. We are down, we feel down, we want to be down and down we are. Particularly in the real estate market, we like to wallow in our self-imposed misery. No matter what the positive news, no matter what the uplifting statement, it is always countered with a frown followed by a seemingly knowledgeable: Yeah, but… (Put in your favourite: NDP, Taxes, housing crash)

I find this amazing. In 1960, the average Vancouver home sold for $13,105. Thirty-eight years later (1998), the average sale price stood at $346,540. Assuming long-ago you had plunked down ten per cent or $1,310 as down payment and hung in there; you would now be gloating over a 26,455-per-cent return on that original down payment. And you have a roof over your noggin to boot. Amazing! Today that average SF house is $1,800,000! Exercise in fantasy but if this lift kept right on trucking for the next 25 years, by the year 2023 that $13,000 home will be commanding over $6 million dollars. And you will still have a roof over your gray hairs.

But at various times in our history, the Yeah, buts scare people out of their wits. In 2003, 2008, 2011 and now 2019 they are out. The naysayers with fur.

We are told that real estate’s day is gone; that this is a New World and that this or that factor will sink real estate investment. Of course, the Chinese have disproved that theory for 2,000 years; the Europeans and North Americans have founded their empires on real estate. In fact, ownership of even the humblest real estate has been the greatest wealth builder bar none for the average person. It has made the average North American wealthier than his counterpart in any other part of the world. In fact, it is the defining difference between rich and poor nations. But no matter to the naysayer this time it is somehow different.

Ok, what about now in 2019? The US tried QT…for 5 months resulting in a stock market crash. QE is back in Europe – will come back in US. All hard assets will be higher. But a new world is upon us…learn to love it…get involved…buy hard new hard assets. So many new opportunities.

Our future is shifting – learn about this. It’s here already…

• Cash less society,
• Paperless world,
• 4-day work week,
• Driverless cars,
• Everything online – everything next day delivery,
• Virtual and augmented reality,
• 3 D printing houses (your widgets?) just starting,

Be positive: The whole world wants to live here. YOU already do!

1. Foreigners will keep coming…Canada is rated No.3 for safety
2. Buy: Your own office/industrial/retail store. Always!
3. Buy: Strata office/strata warehouse
4. Buy: Inner city warehouses (next day delivery needs close buy storage)
5. Buy: Your house/your condo -haggle hard.
6. Yes, 50 developments have been put on hold. Great! That adds value to existing unsold inventory.
7. Understand you make the most money on the day you buy! That is when people run scared. Make stink bids. Buy that deal of a lifetime.
8. Buy cash flow, you can still buy hundreds of cashflow houses condos under $100,000: E.g. in May 2019: Kimberley Ski condo on the hill, fully furnished $79,500.
9. Luxury condos and house prices coming down…make stink bids.
10. Rent a luxury condo, buy a rental property where your money cashflows.
11. Ok, don’t buy: Timeshare, quarter share, Phase 2 condos, Hotel condos, ski resorts without golf.
12. A new phenomena: Lifelong tenants – rental buildings will do well.
13. Study, work, make offers, get the deal of a lifetime. Subscribe to the FREE Ozbuzz…live your life LARGE.

Forget the ‘Yeah buts’. We are thriving in BC. We have consumers that consume. We are in a cycle of growth. This week we had a record in job growth – 8 times the number for April expected. We need more labour. We have huge net foreign immigration (yes, still). We have a desirable high-tech industry, a roaring movie industry, exports and construction all combined to create a diverse and roaring economy. Our GDP expansion is best in Canada together with the lowest unemployment rate. We have the best stores in the world on Alberni St. The world is coming to BC. And not just the high end world: 70 percent of Canadians over 60 want to retire in BC.

Oh, my BC. My Love. Our BC has a majestic environment. outstanding climate and spectacular vistas. There is a very crisp quality in BC. Call it the fine mountain air or ocean spray, balmy sunsets, or clear blue skies that stretch to the horizon. Part of it is that special flavour of the West – an entrepreneurial, innovative flavour, a generosity of spirit, and open arms, an embracing of life in the outdoors and life where the individual can grow to his or her own future best. People from all parts of the world come here, bringing their individuality, charm, wisdom and business acumen.

To work here is a privilege. To live here is a true blessing. To study here is a benefit. To worship here is a natural. To love and hold here – this is paradise.

Credit Union Central says: Prices will double in 20 years

Ozzie Jurock at Real Estate Insider and ozbuzz.ca agrees!

50%+ returns on government treasury bonds? Is it possible?

Let’s face it, most investors only care about stocks. They want a great story and the ability to dream about great potential returns.  Congruently, when someone brings up government bonds, more often than not investors generalize them as a boring safe asset which is owned in a diversified portfolio to reduce risk and generate conservative income.

Let me offer you an alternative perspective.   When investors allocate a proper portion of their asset mix to treasury bonds during the right stages of a monetary easing cycle, they can perform extraordinarily well.  As an example of the type of returns an investor could make, an investor that bought 20+ year duration U.S. treasury bonds in the spring of 2011, would have found themselves up close to 50% by the summer of 2012.  Those are returns without using leverage.

Does that sound like a boring conservative investment return to you?

You might be asking the question – why or how can bonds make that kind of return?

That is because longer duration bonds are very sensitive to changes in interest rates and when an investor owns these bonds during a period of declining interest rates, there is an opportunity to make great returns as the bonds price in those lower yields.  I will elaborate on this further in a moment.

Now many investors may be skeptical because of the fearmongering preached from market strategists.

Have you heard pundits and strategists argue that with the rising U.S. deficits, that the bankruptcy of the U.S. government is imminent?  Or heard that China and Saudi Arabia are dumping all their bonds and will rocket interest rates higher forcing a huge funding crisis?

Often these doomsday sermons are given by strategist advocating the purchase of gold, crypto currencies and other alternative assets.  Or alternatively they simply are underestimating the ability of governments and central banks to manage these flows.

The bullish case for U.S. Treasury and Government of Canada bonds for the remainder of 2019

In order to make a bullish argument on bonds is about building the narrative for lower interest rates to come.  Let me ask you a series of questions for you to draw some conclusions.

1. The Federal Reserve and the Bank of Canada are done raising interest rates. These monetary cycles of raising and lowering interest rates are multi-year cycles and only very rarely is there a flip-flop in policy.  Do you believe the Fed and Bank of Canada are done raising rates?
2. Through history, central banks raise interest rates and tighten credit conditions until the economy stalls, often falling into a recession. Do you believe that we have entered an economic slowdown?

If you answered yes to the above questions, then positioning in treasury bonds is a no brainer.

It is our thesis that the business cycle has peaked, inflation will remain subdued and consequently interest rates have also peaked. As the economy slows, the central banks will ease to stimulate the economy and bonds will have the opportunity to be one of the strongest performing assets in your portfolio.

Best part, it will be a good diversifier for your portfolio as these are periods where volatility in stock portfolios increases.

How do you participate?

There are a number of long duration government bond ETFs available to be owned both in and out of your RRSPs.

Just to name a few:

• BMO Federal Bond Index (ZFL) – Canadian government bonds in Canadian dollars
• iShares 7-10 Year Treasury Bond ETF (IEF) – US government bonds in U.S. dollars
• iShares 20+ Year Treasury Bond ETF (TLT) – US government bonds in U.S. dollars

During the business cycle, there is a right time and a place for each style of investment.  It certainly is a interesting time to consider government bonds anticipating a new rate cutting cycle.

Thanks for reading,

Patrick Ceresna, CMT CIM DMS

Big Picture Trading

www.bigpicturetrading.com

To understand where there is potential for market gains over a 6 – 12 month time frame, it helps to consider the situation that we are in. Looking at the macro scenarios can give us insight on where to drill down for opportunity and understand risks.

Six months ago, the markets were concerned with the potential for rising interest rates and the stifling effect they might have on the global economy. It was one of the two main reasons for the correction that the market suffered in to the end of 2018. However, US Federal Reserve Chairman Jerome Powell rescued the market by keeping rates, and expectations for future rate increases, low. That started the recovery in the US Bond market, bringing interest rates down.

Below is the chart of the 20 Year US Treasury Bond ETF, TLT. This chart shows an inverse relationship with interest rates since rising bond prices mean lower interest rates. So, if the chart below is going up, rates are coming down.

Notice the break through resistance at $123 and the rising bottoms on the chart (as shown by the green line that I have drawn. This means bond prices are likely to continue higher until they hit resistance at $128 on the TLT, meaning interest rates are likely to stay low.

Low interest rates are good for the consumer eager to buy more stuff, including large purchases like homes and automobiles but also in consumer products as financing costs on these larger purchases drops, freeing up discretionary spending.

It is interesting that lower yields for US bonds has still allowed for the strong performance of the US Dollar, which has been in an upward trend since early in 2018, as they can often be inversely correlated. However, an upward trend is what the $US is in and it should be counted on to continue if the upward trend line that I have drawn in green on the chart below remains intact. I expect more upside near term, although we should anticipate some resistance for the $US when it gets back to the highs set late in 2016.

A strong US Dollar has some positive effects for the US based consumer whose purchasing power is improved on imports. In addition, it is cheaper to travel overseas.

Another important chart to consider is that for Oil which has been moving higher since its bottom in December 2018. Recently, it has shown some signs that a pull back is imminent as it recently failed to hold its highs. It is now threatening to break its very steep upward trend line, which if it happens, would likely lead to a topping out for Oil prices and perhaps even a pull back.

Finally, we have the US economy which continues to show improvement. Last week’s employment numbers exceeded expectations by a wide margin and unemployment continues to sit at low levels in the US.

So, we have several reasons to think that the current situation will benefit the US consumer and his or her desire to buy more stuff and go more places:

• Lower borrowing costs
• Increased purchasing power of foreign goods and services
• Lower fuel costs
• Increased consumer confidence

There is a wildcard, or perhaps a Trump card, that has to be considered for the near term direction of the markets. US – China trade was the second primary reason for the market correction in 2018 and the failure to arrive at a new trade deal will likely cause a sharp drop in stocks. Those that will be affected the most are those that have climbed the most. So, from a risk mitigation standpoint, I would avoid a heavy concentration of stocks that are already well in to their upward trends.

Some trading ideas based on these themes:

XRT (S&P Retail Spider ETF) – the group has broken the downward trend line and is building a base between $44 and $46. Buy signal on a break out through $46 on the weekly chart.

EXPE (Expedia) – buy signal if it breaks out of the pennant pattern on the chart below, moving up through $131 with increased volume.

AN (Autonation) – has recently provided a buy signal with the break of the downward trend line, look for a confirming signal on a break up through $43.

Tyler Bollhorn is the founder of StockScores and www.stockscores.com