China Medical's Vital Signs Look Good

When we think of Chinese manufacturing, we think of either fairly cheap or commodity items, such as toys and tires. But in fact, China is producing much more sophisticated technology, not only for export but also for internal use.

Medical equipment is one case of this, and a company that might be worth a look for investment is China Medical Technologies (CMED - commentary - Cramer's Take).

According to the media, the Chinese government has said it will invest significant amounts of money in equipping rural medical facilities with needed medical equipment, because the quality of care there has not kept up with the urban areas.

KPMG reports that China's medical-equipment market is growing at double-digit pace, which supports Morningstar's projection that this market will grow 14% annually over the next five years. BCC Research says China has become one of fastest-growing medical markets in the world and the largest medical-device market in Asia after Japan.

China Medical Technologies is in the thick of things. According to the company, it develops, manufactures and markets in-vitro diagnostic products using enhanced chemiluminescence technology and fluorescent in situ hybridization technology to detect and monitor various diseases and disorders. It is also in the business of producing therapeutic products using ultrasound for the treatment of solid cancers and benign tumors.

The Martin Zweig-Based Strategy

Martin Zweig has been a respected member of Wall Street's top-tier investment strategists and thinkers for decades. I have followed him for years, and when I set up my Web site, Validea.com, which automated the strategies of the great financial thinkers, I included him right from the beginning.

When my Zweig-based strategy says a company is worth investing in, I pay attention. Today, China Medical is such a company. Its price-to-earnings ratio of about 27 fits nicely within the 5-to-43 range set by the strategy. Revenue growth, says the strategy, must be at least equal to profit growth, because the strategy does not want profits to jump ahead on one-time factors such as cost-cutting. In China Medical's case, revenue growth is 70%, while earnings growth is 49%, all of which is very good.

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At the time of publication, Reese had no positions in the stocks mentioned, although holdings can change at any time.

John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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