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Two Stocks To Buy And Forget For The Next Decade–Stryker And Zimmer – Forbes

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Stryker Corporation (SYK) and Zimmer Biomet Holdings (ZBH) are in the right industry at the right time.

The industry is orthopedic and biosurgery products; endoscopic and communication systems; and minimally invasive products for the treatment of acute ischemic and hemorrhagic stroke.

In 2016, for instance, 60 percent of Zimmer’s sales came from the sale of knee and hip replacement products. Biomet’s Oxford® Partial Knee System is the most widely used and clinically-proven partial knee replacement system in the world.

The time is now, the middle of a massive aging of the baby-booming generation, which is expected to go on for another seven years. This trend began around 2005, as the first baby boomer cohort crossed the age of 60. This trend is expected to last until 2024, when the last cohort crosses the age of 65.

The portion of the world’s population that is over 60 is expected to reach 30% by 2025, compared to 20% in 2000.

That could explain the strong growth for products of Stryker and Zimmer. Especially Stryker, which saw its revenues grow by 18.40 % in the most recent quarter. And things can only get better as the massive aging of the baby-boomers continues, and the two companies expand their product portfolio through innovation and acquisitions.

While SYK and ZBH are in the right industry at the right time, they have a good control of it, because they have a near duopoly. This means that they are price makers. They can set their own prices, and enjoy hefty operating margins—in the low 20s.

Wall Street has taken notice, sending both stocks sharply higher in the last five years.

Nonetheless, the big gains are ahead rather than behind, as additional baby-boomers cross the age of 65; and investors become aware of the big opportunity in the prosthetics segment of the healthcare industry.

Stryker’s and Zimmer’s Key Financial Metrics

Company

5-year Performance

Operating Margin

Qtrly Revenue Growth

Stryker (SYK)

159.88%

22.38%

18.40%

Zimmer (ZBH)

114.58

22.54

3.80

Source: Finance.yahoo.com 6/30/17

A few words of caution: the healthcare industry is highly regulated, and government and large insurance companies enjoy monopolistic power. Besides, with the approaching fiscal cliff, the drive to cut medical expenses and medical costs is more urgent than ever. Only companies that can help cut healthcare costs can survive — and thrive — in that kind of environment.

Disclosure: I own SYK and ZBH

My recent book The Ten Golden Rules Of Leadership is published  by AMACOM, and can be found here.