Varian’s Strong 2012 Performance Foreshadows Break-Out in 2013?

It’s that time of year again. Time for predictions. Go ahead and Google “what’s hot for 2013” and prepare for a deluge of investment advice. But do yourself a favor. Don’t let the headlines tell you what to buy in 2013. Instead, let the market tell you what to buy. Follow the institutional buyers.

The prevailing wisdom is suggesting that the home building industry looks poised to take a breather. Institutional buying could change that, but it doesn’t appear likely at this time. And while leadership could come from the financial sectors in 2013, don’t buy in anticipation, wait for it to happen. Again, watch for the institutional buy/sell signals (above average gains and volume expansion).

And then there is healthcare –always a good source of leadership. Strong fundamentals abound in healthcare. For example, bullish price and volume trends at medical-device maker Varian Medical Systems (NYSE: VAR ) foreshadows the potential for 2013 to be breakout year. “VAR delivered solid results in Q4/12 with the exception of free-standing clinics, which was understandably weak given the initial proposal by CMS for significant reimbursement cuts earlier this summer,” wrote Barrington Research analyst Charley Jones.

Varian’s software and systems are used for treating cancer. The company has a consistent track record of growth and its shares remain under accumulation. It’s been holding gains since October. The company is based in Palo Alto and does about $2.3 billion in annual revenue. Varian holds about 60% of global market share in radiotherapy  equipment. High switching costs protect Varian’s market share since a brand-new system costs $2-3 million, but the company’s enlightened “open systems” approach lets its customers integrate its upgrades with old equipment from competitors, presenting an additional opportunity to steal market share at more reasonable price entry points. The reverse is not true of its major competitors. Yes, this strategy has served the company well –it’s as good as it sounds.

I’m going to “track” Varian in 2013 and will keep you posted on its stock performance.

Editor’s Note: The information in this post should not to be considered a solicitation or recommendation. I am not connected with the financial industry and nothing here should be construed as giving investment advice.

Source: NASDAQ, Barrons and WSJ

—Tom Finn

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