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Health-Care Reformer: Under the Radar

BOSTON ( TheStreet) -- Companies that are able to reduce the country's exorbitant health-care costs will prove to be lucrative investments. One pint-sized company to consider is Emergent Group (LZR), owner of PRI Medical Technologies, which provides surgical equipment on a fee-for-service basis. The Sun Valley, California-based firm focuses on independent hospitals that are unable to afford specialized surgical tools, specifically, advanced laser technologies.

Emergent Group is minute, with a market value of $52 million and fiscal 2008 revenue of around $23 million. A company of such small stature presents unique investment risks, principally, thin trading volume. Just 9,500 Emergent shares exchange daily, making it a comparatively illiquid security. However, the company offers a lesser-known growth story and sound fundamentals. Over the past three years, Emergent has increased revenue 25% annually, on average, and boosted net income 37% a year.

Its business isn't only profitable, enjoying a gross margin of 47%, but sensible. Hospitals incur a hefty cost for surgical equipment. And purchasing such equipment entails risks: What if demand for operations declines? What if a superior technology emerges? What if the equipment is damaged? A health-care center is required to bear the aforementioned risks when it buys new equipment. Contracting with PRI Medical Technologies eliminates those risks in a cost-effective manner.

In addition, Emergent offers expertise to accompany its rentals, providing hospitals with technical staff experienced in the application and maintenance of equipment. Emergent Group is an appealing investment because it's built upon the maxim of specialization. By focusing on one area of health care and investing its time and money appropriately, it offers a compelling value proposition: providing hospitals, and their patients, with access to state-of-the-art treatments at a reduced cost.
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