Medical companies have fallen by the wayside in recent months, but let’s not forget how undervalued these companies have become. For many “meditech” and pharmaceutical companies, the real value is in the protection of their pipeline - the power of patents! The company who holds several key patents and sits at the top of my buy list is Palomar Medical Technologies (NAS:PMTI).

The company has been approved for roughly 50 patents, and the most important one came only a few weeks ago. With the cosmetic and dermatological markets gaining popularity in recent years, the company is in a great position to control most of the commercial laser treatment market. Their latest patent and deal (partnered with Johnson & Johnson) involves bringing this technology to the multi-billion dollar personal cosmetics market - a segment that could easily double their sales. Not to mention increasing the likelihood of a buyout from one of the major biotech companies.

Since lowering their guidance for the fiscal year of 2007, Palomar has been on a freefall from its 52-week high. However, with earnings estimates so low, there is a great chance the company will post higher numbers and regain the attention of investors.

Looking at a 6-month chart we see the stock poised to make a strong reversal as it breaks through its former support line at $38. If Palomar can break through this historical trendline, expect this stock to jump on higher buyer volume. My short-term price target is $46, and I expect this to be met by the end of the 3rd quarter. Never forget the power of patents.

Filed under: Bargain Basket, Fundamental Research, Stocks, Time To Buy