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By Timothy Lutts

One rule of momentum investing says that growth stocks that can hit new highs, even when the broad market is weak, are likely to do even better when the pressure comes off the broad market. Think of it like a coiled spring; as soon as the market’s pressure eases, the coil explodes higher. Many growth stocks do something similar.

So last week, as the broad market was tanking, I ran a quick screen, and found a handful of resilient names. Most interesting to me was the strength in healthcare stocks. In effect, investors are now saying that with the much-debated health care bill dead in the water, corporations will be able to carry on in their usual money-making ways. Two of my favorites are below.

Perrigo (NYSE:PRGO) is the largest U.S. maker of store-brand over-the-counter drugs, making and marketing over 1,300 store brand products and over 250 generic products. These include cough and allergy medicines, gastrointestinal drugs, analgesics, dietary supplements and smoking cessation products.

The company has grown revenues every year of the past decade, and grown earnings every year since 2006. Last Tuesday, it reported fourth quarter results, and they were terrific (see conference call transcript here). Revenues grew 9% to $583 million, while earnings shot up 56% to $0.70 per share. Analysts had been expecting $0.66. Also, the after-tax profit margin was a hefty 11.1%, the best in many years.

In response, buyers bought the stock heavily, pushing it up from 44 to 46 on more than double normal volume. Equally important, this marks a clear breakout above the stock’s 2008 peak of 43. I think it has further to run.

Substantially smaller than Perrigo is EV3 Inc. (EVVV), a Minnesota company whose stock has been coming on strong, climbing from 11 to 15 in the past thee months. Because of this strength, the stock earned a spot in Cabot Top Ten Report last week, and here’s what editor Michael Cintolo wrote.

EV3 calls itself “Your endovascular company.” Its expertise is the minimally invasive treatment of lower extremity peripheral vascular and neurovascular diseases. The company has developed and acquired a portfolio of devices including stents, guidewires, balloon catheters, thrombectomy catheters, plaque excision systems, embolic protection devices, liquid embolics, embolization coils, flow diversion systems and occlusion balloons. And business is good; revenues have grown every year of the past decade. Looking forward, earnings estimates are up, profit margins are very healthy and growing, and the number of institutional investors is growing, too. In fact, back on January 19, JP Morgan upgraded the stock to “overweight,” setting a price target of 19.

Mike recommended that subscribers buy the stock between 14 and 15, and the good news is that as the week went by, the stock declined calmly in sympathy with the market, closing at 14. I think it’s a decent buy here.

Source: Perrigo, EV3: Two Attractive Healthcare Stocks