Baxter (BAX): Bank on blood products

"The medication-delivery business makes products that fill intravenous infusion pumps and other devices. The renal division focuses on dialysis equipment and services for kidney-failure patients.

"In October, Baxter gained clearance to market Celvapan -- a vaccine for H1N1, or the swine flu -- in Europe. To date, the company has received orders for about 80 million doses.

"With the disease showing few signs of subsiding, the vaccine could provide a sustainable revenue stream over the next several years.

"In the past two years, Baxter has spent 7% of sales on research and development. The company is pursuing therapeutic uses for stem cells, influenza vaccines, and intravenous treatments for Alzheimer's disease.

"One new product, an enzyme called Hylenex that helps rehydrate children by making their skin more permeable, could generate $200 million in annual sales.

"Baxter trades at 16 times trailing earnings, a 17% discount to the three-year average P/E ratio. The stock trades at least 12% below its three-year average price/sales and price/cash flow ratios. Wall Street estimates have been rising and currently call for per-share-profit growth of 12% in 2009 and 13% in 2010.

"Baxter pays a quarterly dividend of $0.26 per share and yields 1.9%. The company has also aggressively repurchased shares, reducing the share count by more than 7% over the last 10 quarters.

"Overall, the company benefits from a robust balance sheet, solid operating momentum, and rising earnings estimates. Baxter International is a Long-Term Buy."

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