St. Jude Medical: Safety in a Wild Market

In a market where investing can be very dangerous, there are very few options to go to where one can be safe. Well, just like being in some horrible accident, in the stock market you can always find relief in medical stocks.

Obviously, some stand out compared to others. Right now, St Jude Medical Inc. (STJ) is standing out based on price action and strong fundamentals.

This is a company that develops cardiovascular medical devices for cardiac rhythm management and atrial fibrillation; their product is currently in huge demand, as guidance is constantly being risen.

The current EPS has grown 14%, 18%, 21%, 38%, 32%, and 33% the past five quarters. The sales have grown 11%, 9%, 13%, 14%, 13%, 18%, 14%, and 20% the past eight quarters. This current growth is steady and amazingly strong but rising estimates also call for YOY EPS gains of 25% and 12% in 2008 and 2009.

This amazing growth is thanks to its low 6% debt to shareholder equity and 22% return on equity. This allows for a cash flow of $2.48 per share while June ’08 EPS is only .60.

Some are thinking that the five year EPS growth rate of 19% and recent moves have the stock priced high. However, a P/E ratio of 22 is in the lower end of a 5-year range of 18-41, so no one can say this is an expensive stock just because its stock has risen.

The stock could continue to ride as big institutions continue to plow into this stock now, making up 29% of the ownership - 399 funds from just 370 two quarters ago is part of the reason for the rise.

There are other strong stocks in the group confirming the price action. They are Cyberonics (CYBX), NuVasive (NUVA), CryoLife (CRY), Merit Medical Systems (MMSI), and Thoratec (THOR).

The strength of this stock and its group cannot be dismissed in a market that, since January 8, 2008 until August 11, 2008, has moved a “whopping” (I am being sarcastic) negative 0.02%. So basically the market has gone absolutely nowhere in seven months. STJ, however, is up 15%, well outpacing the overall relative strength of the market.

If I can get any pullback on low volume to the 45 to 46 area, or even better yet, a pullback to the 50 day moving average (remember the pullback has to be on low volume), I would love to add to my position in this leading medical products stock.

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Disclosure: At the time of publication, Joshua was long St Jude Medical Inc. (STJ)