With a rapidly aging boomer population, this is a good time to be looking at a company like ArthroCare (NASDAQ: ARTC), which manufactures products that enable minimally invasive surgery. Its sports medicine division offers products to surgeons working on knees, ankles, elbows, hips, and other joints that are taking steady pounding among the millions of boomers who continue to lead active lifestyles. In addition to sports medicine, ARTC also has divisions focusing on products for the spine; ears, nose, and throat; and other general areas such as gynecology, cardiology, and urology.All of these areas will be in increasing demand as the boomers age, and I think this is a company with enormous growth potential. Its revenues have been increasingly steadily over the past couple years, and the first quarter of 2007 showed an 18% growth over the first quarter of 2006. ARTC is scheduled to release its second-quarter earnings on Thursday, and BMO Financial Group recently released a report predicting revenue growth of 19% and EPS growth of 27% over the second quarter of 2006. BMO also forecast a jump in the stock price, all the way up to $53 (it's currently at $47), and I think they're absolutely right.
In addition to the growth potential created by boomers, I like the way ARTC is managing itself. The company continues to invest in R&D, and it continues to introduce new products on a regular basis. The company expects its expenses to grow at a steady rate, and to take up a consistent percentage of revenues. While this may prevent profits from growing rapidly, the margins have been solid (net income was 10% in the first quarter). What this says to me is that ARTC is a corporation committed to reinvesting in a way that will produce steady, profitable growth for the foreseeable future. This is a stock you can buy and hold for the long term as it delivers consistent profits for your portfolio.
Type of stock: A biomedical firm with strong and steady growth and a niche that will be in increasing demand over the coming years.
Price target: ARTC's stock price has been rising steadily since March, and it's currently at $47, just a dollar off its 52-week high. But I think BMO is right, and this one is going to keep rising. I'd buy it before the earnings report on Thursday if you can.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
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