"Hip" Selections

02/06/2004 12:00 am EST

Focus:

Gregory Spear

Editor and President, The Spear Report

"We like the medical device manufacturers, which are a play on the aging boomers," says Gregory Spear, editor of The Spear Report. "While people are staying active longer, aging is such that certain risks naturally increase, particularly the risk of bone and joint dysfunction." Two stocks on his buy list address these issues.

"Biomet (BMET NASDAQ) makes knee and hip reconstruction and replacement devices (along with other orthopedic devices and instruments) and sells worldwide. The company has recently introduced minimally invasive hip and knee systems and instruments, which keeps it on the cutting edge of medical science. BMET has no debt and has missed earnings estimates in only two quarters over the past 20 years. They don't come much cleaner than that! Over the last five years, return on equity averaged 22%, with earnings growth over the last ten years consistently in the high teens. In December, BMET reported record sales and earnings results for its second fiscal quarter ended November 30. Net sales increased 14% to $387.5 million, while operating income increased 16% to $126.2 million. Net income increased 18% to $82.6 million and diluted earnings per share increased 19% to $0.32. We reiterate our long-term buy-and-hold call on BMET.

"Stryker (SYK NYSE) is the nation's leading manufacturer of orthopedic implants. (While Biomet competes with some aspects of Stryker's product line, Stryker's is the broader of the two.) Stryker makes specialty surgical and medical products for orthopedic reconstructive surgery (hip, knee, and shoulder implants), bone repair, spinal implants, along with powered surgical instruments, endoscopic systems, image-guided surgical systems, and even the high-tech hospital beds and stretchers used in healthcare centers worldwide. In addition, Stryker also provides outpatient physical and occupational rehabilitative services in the US. Stryker earned $425 million on $3.5 billion in sales in the last 12 months. The stock has delivered 18% to 22% revenue growth, and 20% to 30% earnings growth and a 21% return-on-equity for years. No wonder the stock has produced a 22% annualized return over the past ten years, with only one down year (1993) in the past decade. Technically, SYK’s chart is simply beautiful. It has been doing nothing but going up since 1985. All aboard!"

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