Stryker (SYK): A bargain at 21.5 times EPS

By J. Roydan Ward, Editor of Cabot Benjamin Graham Value Letter

From Cabot Wealth Advisory 4/24/08  Sign up for free Cabot Wealth Advisory e-newsletter

Stryker Corp. (SYK) develops, manufactures and sells specialty surgical and medical products. The company’s orthopedic division makes hip, knee and other implants. Stryker also makes surgical drills and saws, medical video cameras and instruments for implants. Stryker derived 38% of sales last year from international markets, which are expanding rapidly.

SYK is in an industry with above average growth and has taken advantage by spending heavily on new research. The resulting steady stream of innovative products has produced rapid growth during the last several decades. I expect 20% actual earnings growth during the next several years led by new orthopedic implant products.

A steady stream of new health care products for an aging population coupled with well-managed cost controls should push SYK’s share price substantially higher in 2008. The stock is a bargain at 21.5 times next 12-month EPS. The dividend yield is low at 0.5%. I expect SYK shares to advance to my Minimum Sell Price of $90.78 within one to two years.

The stock market is performing noticeably better now, and I advise buying a mixture of growth and value stocks to keep your portfolio balanced.  SYK is a leader in the health care industry with strong growth potential, and at a very reasonable price. I strongly recommend buying SYK at its current price.

Roy Ward
J. Royden Ward

Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.