For his top stock pick for 2009, market timing expert Sy Harding looks to medical products company, Zimmer Holdings (NYSE: ZMH).
In his Street Smart Report, the advisor looks at the maker of othopedic implants, noting, "Currently trading at just 1.6 times books value, 2.3 times sales, and at 9.5 times earnings, the stock is a bargain." Here''s his review.
"Zimmer designs and manufactures orthopedic implants, including joint, dental, and spinal replacements, as well as surgical instruments designed to aid in orthopedic surgery and post-operation rehabilitation.
"The company has been growing steadily from both rising sales of its own products, and from acquisitions. Its most recent acquisition was Abbott Spine, acquired from Abbott Labs for $360 million.
"The acquisition was funded from cash on hand and its already existing credit line, worth noting given how the credit crunch is causing problems for many companies. Zimmer’s ratio of long-term debt to equity is only about 20% of its industry’s average, and it maintains a high level of cash.
"In its most recent earnings report, for the September quarter, the company reported a 39% earnings increase over the same period a year ago, on a 5.4% increase in sales.
"However, profit margins will contract short-term from those kinds of levels due to costs associated with it latest acquisition, as well as the company’s plans to increase its R&D expenditures.
"The slowing economy will also probably have some effect on sales of that portion of orthopedic procedures that are voluntary. In the other direction, about 40% of sales are international, and will be positively affected if we are correct in expecting the U.S. dollar will end its rally and resume its long-term downtrend.
"Meanwhile, Zimmer shares plunged with the rest of the market this year, and are 54% below their peak of last October. On a valuation basis, that has Zimmer shares selling at just 1.6 times books value, 2.3 times sales, and at 9.5 times earnings.
"We believe that puts them on the bargain table. Our upside target is 60, which would be a 50% retracement of the previous decline. We suggest a protective stop at 33."
