Stryker: In the Right Business at the Right Time

Includes: SYK, ZBH
by: BubbleBustInvesting

Investors who are concerned about the fate of the stock market once QE2 runs its course should start looking for other catalysts, like the aging of the population that is expected to boost demand for orthopedic surgeries. One of the companies to benefit from this trend is Stryker (NYSE:SYK), a leader in medical surgical equipment and orthopedic implants.

The company is in the right business at the right time, as it is riding the trend of the massive aging of the baby-boomers. Since it went public in 1979, sales and earnings have grown at a very rapid rate with sales reaching 7.3 billion in 2010 (an 8.9 percent increase over the previous year) and earnings per share of $3.33 (a 12.6 percent increase over the previous year leading to a P/E ratio of 17.7). This strong performance has allowed the company to raise its dividend from 0.50 cents in 2009 to 60 (1.20 percent) cents in 2010, the sixth consecutive increase since 2004.

Stryker’s success comes from three sources.

  1. Operational effectiveness, the ability to cut costs and improve quality to comply both with strict FDA standards, and government mandates to reduce healthcare cost.
  2. The introduction of new products, through internal R&D and the acquisition of other companies. In 2010, for instance, the company received 108 patents, and acquired the Neurovascular business of Boston Scientific.
  3. The nurture of a strong corporate culture, ranked 68 among the "100 Best Places to Work For" in the 2009 listing.

Stryker is firing on all cylinders and is gaining market shares in the industry. Its strong performance sharply contrasts with the one of its closest competitor Zimmer Holdings (ZMH) that only experienced a 2.5 percent sales growth and a -77.50 earnings growth. Stryker stock has gained over 20 percent over the previous year, and although it has suffered a small pull back in the last month, its chart still looks bullish (with rising 100- and 200-day moving averages), as are industry fundamentals: The portion of the world population over 60 is expected to reach 30 percent by 2025 compared to 20 percent in 2000.

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Stryker is a stock to buy and forget that you own it for the next 10 years!

Disclosure: I am long SYK.