Buy This Global Leader In Health Care At A Huge Discount

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In the next 30 years, the U.S. Census Bureau expects the number of people age 65 or older to double, jumping to 80 million. That domestic trend mirrors a larger global trend: By 2050, more people worldwidewill be older than 65 than younger, according to the United Nations.

These are clear signals of a long-term shift in global demographics. And that trend has health care investors drooling over opportunities to invest in the growing demand for health care products and services.

Because of health care's importance, there is no shortage of great health carestocks to invest in. Cancer drug specialists like Biogen Idec (Nasdaq: BIIB) and Celgene Corp. (Nasdaq: CELG) have been posting hugegains . Medical equipment makers such as Intuitive Surgical Inc. (Nasdaq: ISRG) have also performed well.

But there is one company that stands out because of itsundervalued share price. Despite abullish double-digitgain in the past six months, itsshares still trade at a record-low valuation.

With amarket cap of $25 billion, Stryker Corp. ( SYK ) is a global leader in medical products and devices. Although Stryker is up a market-beating 24% in the past six months, it's not too late to get in. This company is in a great position tocash in on the aging domestic and global population.

Stryker specializes in a wide variety of surgical tools and neurotechnology products. This diversified set of offerings protects Stryker against weakness in any single market. That is a far cry from branded drugmakers, which carry billions of dollars' worth of product risk in pending Food and Drug Administration (FDA) approvals.

Stryker is also world-renowned, with dealers and distributors operating in more than 100 countries. That provides the company with an ideal foundation to expand its presence in developed economies such as the United States and Japan while entering high-growth markets in South America and Asia.

Stryker has been busy building on its market-leading position in the past few years, using its strongbalance sheet to boost its product portfolio and geographic exposure. It completed itsacquisition of Boston Scientific's neurovascular unit in January 2011 for $1.5 billion in cash.

In the second quarter of 2011, Stryker completed its acquisition of orthobiologic and biosurgery products maker Orthovita for $316 million. In January of thisyear , Stryker announced plans to buy China-based Trauson Holdings -- a competitor of Stryker's spine segment -- for $685 million.

Even after buying a string of companies, Stryker still has a conservative financial profile, with cash and equivalents of $4.3 billion andlong-term debt of just $1.7 billion.

Stryker's aggressive expansion strategy andoperating leverage are expected to fuel steadyearnings growth.Analysts are looking for full-year earnings of $4.32, a respectable increase of 6% from last year, and 8.5% earnings growth in 2014, with projecting earnings of $4.69. In the next five years, analysts are projecting annual earnings growth of 8.5%.

Despite that steady earnings growth, Stryker has underperformed the market and its peers the past two years. That has shares of the company trading deep in value territory, with a forward price-to-earnings (P/E ) ratio of 15, a deep discount to its 10-year average of 22.

Stryker also pays adividend , carrying adividend yield of 1.6% that is only marginally less than the 1.7%yield on the 10-yearTreasury note .

Risks to Consider: Medicare is a big source of senior health care funding. With the U.S. government running up hugedebts , any cuts to social programs could weigh on Medicare payment volumes.

Action to Take -->
With amarket cap of $25 billion and operations in more than 100 countries, Stryker is a global leader in reconstructive products and medical devices. Although it holds an industry-leading position, the company continues to grow and pursue new markets through strategic operations. If Stryker simply traded with its average valuation in the past 10 years, its shares would rise 30%.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: SYK

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