In Focus

Stryker: Definitely Too Hip To Be Square

The other night I was busy tap, tap, tapping on my computer catching up with Chick posts, doing a little research and answering an occasional Instant Message. This time it was my mother sending me the IM. She just wanted to say "good night," send me her usual Xs and Os and then she followed up with, "when you get the chance, could you run Stryker's numbers? I'm thinking of reinvesting." Stryker, I thought, who the heck are they? I was pretty sure she'd mentioned them before, and once again, I wondered how she comes up with these random companies. Being her loving daughter, I ran the numbers. Their margins (Gross = 63% and Net = 10%) were enough to get my attention and redirect my current research.

You might be asking yourself why I even bothered. After all, this stock clearly violates the first principle of the Chicks' Dozen: Buy What You Know. I've already admitted I'd never even heard of Stryker Corporation. Stock guru, Peter Lynch, has taught us to think of our local shopping mall (or our neighborhood) as our stock-picking laboratory. I like to consider my friends, fellow club members and family as my lab assistants. I've said before, it's often worthwhile to buy what you get to know. These people will help you find those companies worthy of investigation.

It only took me a moment to realize why my mother knew a company with which I was totally unfamiliar. Stryker (NYSE: SYK) is in the medical equipment and supplies industry. More specifically, they make the implants that replace defective hips, among other things. Well, my goodness, my mother could be an expert on those, she's had three of them! Of course, one hip was done twice, she's not some rare 3-legged creature. I have no idea if Stryker manufactured my mother's hips and she's out of town now so I can't ask. I do know whose hips she does not have, however. Recently, a strong competitor, Sulzer-Medica, suffered a major setback when a recall was issued on their faulty hip replacements. My mother was lucky -- they hadn't manufactured her hips. This was good news for Stryker as well, who may have the opportunity to pick up market share.

Obviously, this company isn't just making artificial hips. Other reconstructive products include knees, shoulders, spinal implants, bone cement and other trauma-related products. This is called the orthopedic implant sector of their business. Another sector is MedSurg Equipment. It is this part of their business, which includes everything from high-tech hospital beds to bone-cutting surgical saws, that has caused some to nickname them the Black & Decker of the medical profession. A third segment includes Physical Therapy Services. They operate a network of 266 outpatient physical therapy centers in 25 states and the District of Columbia. One perk of owning a stock in this industry is the fact that it is relatively insulated from the nauseating ups and downs of the economy. I'm not sure how many other stocks you find these days trading at (or close to) their 52 week highs, but Stryker is among them.

Last December (2000), the company was added to the S&P 500 index. It had been part of the S&P MidCap 400 prior to that switch. Although this isn't a flashy biotech company, but rather a dependable orthopedic one, it shouldn't be tossed aside. Remember, we're in this for the long haul. For a long hike, which shoes would you rather be wearing -- your flashy pumps or those sensible walking shoes? In its 2000 annual report, Stryker reiterated that they have delivered 20% or better net earnings growth for more than 21 years! Apparently, they chose to take on debt in 1998 for an acquisition, but announced that profits are back on track again. This explains why the only number in the Chicks' Dozen that was a tad troubling was the cash-to-debt ratio. The flow ratio, on the other hand, was an efficient 1.59. Glad to know there aren't warehouses somewhere filled with artificial joints looking for a home!

Stryker is also sure to profit from those aging baby boomers. This is one of the reasons my mother cited for reinvestment. I wonder if the fact that people today seem to have more active lives will also translate into the need for more implants later? At any rate, Stryker says they expect earnings growth of 20% to continue over the next few years.

Well, I'm going to give my mom the facts and, as always, let her decide what to do with the information. It's definitely on my stocks-to-watch list. And heck, I'm an aging boomer myself, so it better be a company I watch as well. After all, I may end up owning more than just a piece of its stock in my later years!