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After years of robust financial health, artificial knee- and hip-joint maker Stryker (NYSE:SYK) has suffered aches and pains the last couple years. Now it’s ready to shake them off, but investors are still acting like Stryker’s all kinked up.

Most likely, the orthopedic-product maker’s uncharacteristically downbeat recent performance is just a passing twinge, caused by weak economic conditions. But some people are worried that, because of secular changes now altering the financial underpinnings of the healthcare industry, Stryker’s profit growth is never going to recover its former zip.

If the doubters are wrong — and they probably are — then Stryker shares are a bargain these days, with a multiple well below the average of recent years.

For a long time, the company’s revenue increased consistently …

… and earnings — while not immune to either the economy’s swings or to competitive pressures from artificial-joint rivals like Johnson & Johnson (NYSE:JNJ) and Zimmer Holdings (NYSE:ZMH) -– trended reliably upward as well.

Then came the recession. As it dragged on, the healthcare sector’s reputation as a safe haven from economic turmoil suffered. Last year, Stryker’s revenues grew by just one-tenth of one percent, and earnings fell. This year’s results are up from those depressed levels, but are nothing to get excited about, and the stock has stalled out.

The profit problem isn’t demographic: aging Baby Boomers keep on replenishing the pool of prospective joint-replacement candidates.

No, Stryker’s difficulties reflect the fact that, in contrast to urgent surgeries for cancer or coronary patients, joint replacements are largely elective procedures. Like buying a new car, in other words, getting a new hip can be delayed. For a while.

As unemployment climbed, so did the number of people without health insurance. The result? Although Stryker’s profit margins largely held up …

… the bad economy put pressure on the joint-reconstruction, or “recon,” market, and on the shares of players like Stryker and Zimmer.

It’s “no secret,” Stryker CEO Stephen MacMillan conceded in discussing third-quarter earnings with analysts [see transcript], that the “reconstructive implant market is seeing softer procedure growth” as well as price resistance from cost-conscious hospitals.

Stryker is also a major provider of medical and surgical supplies, and its MedSurge segment got socked particularly hard last year as hard-pressed hospitals and other healthcare providers trimmed their spending.

When unemployment begins to ease, the cyclical negatives will let up on both Stryker segments. That will set the stage for a profit rebound at the company. Unless, as some predict, national healthcare policy changes create permanent, new pressure on sector profits. It’s true the new healthcare bill creates an unwelcome excise tax on medical-device makers. But aside from that, the impact of the bill’s many other changes are far from clear.

And betting on insurers and other payers to rein in hotshot, rainmaker orthopedic surgeons — who choose joints to implant — seems a long shot.

The one thing that seems certain, Stryker officials say, is that even more money will be spent on healthcare in the future.

If they’re right – and they probably are – then it doesn’t make sense bet against the dynamics that fueled the company’s growth over the past three decades, and which put three of the founder’s grandchildren (as minority Stryker stockholders) onto the Forbes 400 wealthiest list.

Disclosure: none

Source: Stryker's Recent Pain: Just a Passing Twinge