This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Stryker's Still Too Risky

NEW YORK ( TheStreet) -- There's not much anyone can do whenever the Street has made up its mind about fundamental metrics on which it wants focus. Nor can we control what the Street decides to completely ignore. But I can't see how shares of Stryker (SYK) makes any sense at these levels.

The last time we discussed this company, I told you that the stock was too expensive. Not only was Stryker (at the time) trading at a P/E of 21, which (then) exceeded the industry average of 20, but the stock was also trading at a P/E three points and four points higher than rivals Zimmer Holding (ZMH) and Covidien (COV), respectively.

If that was not enough, add the fact that the company was mired in legal battles due to product recalls for two of its artificial hip implants. Even then, the stock was up 20%.

Now, following another subpar quarter, I'm even more concerned about the growth challenges that lie ahead, even if the Street believes the company will get by unscathed.

It's pointless to dispute Stryker's strong market position. I won't disagree that the company has a solid lead in the in the orthopedic and medical technology market where it competes with (among others) Johnson & Johnson (JNJ) and Medtronic (MDT). But that's not the issue here.

What concerns me is, as seen by the stock's recent 52-week high and 11% gain over the past three months, investors are already pricing in a victory over the recall situation. Whether or not this works in your favor, it doesn't excuse the fact that this is a dumb bet and completely unnecessary. Bulls will disagree.

However, before you send your emails, consider that in the most recent quarter the company earned 56 cents per share on revenue of $2.21 billion. The earnings-per-share amounted to $213 million, which means that earnings declined by 35% since the April quarter. For a stock that is trading at such enormous expectations, while carrying above-average risk, I don't believe that investors should be please with 4% organic growth.

As with the April quarter, I wasn't all that impressed with Stryker's segmental performance. While the company did well in orthopedics, growing by more than 7%, the company's MedSurg segment grew just 4% (as reported). Even its Stryker's hip and knee business, which both grew in mid-single-digits, the company didn't meaningfully outperform Johnson & Johnson, which carries significantly less investment risk.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,215.84 -63.90 -0.37%
S&P 500 1,997.42 -12.98 -0.65%
NASDAQ 4,531.5380 -48.2510 -1.05%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs