Beat Goes On for This Medical Marvel

01/31/2011 11:40 am EST

Focus: STOCKS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Edwards Lifesciences is capitalizing on strong global demand for its heart valves, writes Louis Navellier in Blue Chip Growth.

Please don’t think I’m trying to be clever by recommending a heart stock just ahead of the Valentine’s Day holiday. This new buy is an impressive medical appliances and equipment company that specializes in manufacturing products that treat cardiac diseases.

Edwards Lifesciences (NYSE: EW) is the world’s largest creator of artificial heart valves, including valves made from animal tissue, and annuloplasty rings that repair damaged valves. Other major products include heart monitoring systems, various types of surgical tubes, and catheters.

EW is the exact kind of company we want to own right now because it has exposure to fast-growing economies overseas. EW markets its products worldwide through a direct sales force and distributors. Its innovative Edwards INTUITY valve system will launch in Europe in the second half of 2011 and it’s launching several expansion efforts this year.

The company also recently announced that it is looking into acquiring technology and small heart device companies—perhaps in strategic global locations. Edwards recently forecast 11% to 15% annual sales growth  for 2011, and that should prove to be a conservative estimate.

Fourth-quarter earnings will be released in a few weeks, so we’re getting in at the right time. The analyst community is expecting just 11% annual sales growth and 26% earnings growth, which equals $0.53 per share. Analysts tend to underestimate EW, so I expect Edwards Lifesciences to post some big earnings surprises in the upcoming quarters. Buy this conservative stock under $90. [Shares closed near $83 Friday. Josh Peters recently recommended another medical devices maker with excellent fundamentals—Editor.]

Corporate Flush Meets Municipal Crunch 
Standard and Poor’s 500 earnings for the fourth quarter are expected to come in 67.1% higher than a year ago. The current estimated increase for the whole of 2010 is 40.8%. Since companies have been surprising Wall Street, the numbers, when they are finally reported, are likely to be higher and put investors in a good mood.

With a better environment for spending and expansion, we’re going to see the nearly $2 trillion of cash sitting on corporate balance sheets come into play. We will see that cash go to work in 2011 and drive the market higher. Just like cash can burn a hole in consumers’ pockets, it does the same thing in Corporate America, which is itching to spend much of its cash as its balance sheets become increasingly bloated.

The first and easiest decision is for many companies to continue to buy back their outstanding stock, which helps their earnings per share rise even further. The second decision is to redeem more expensive debt. The third decision is to go on a buying spree and buy your competitors and to venture into new businesses. As a result, “merger mania,” which started back in August, is expected to remain alive and well for the next several months.

That’s the good news. The two items I’m watching that may not be so positive for the economic recovery and the market are rising municipal deficits and the clear trend of rising global inflation.

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