Tuesday, April 28, 2009

The Ouchless Ouch

Most of us sitting at desks watching stock price screens experience little more physical trauma in their lifetimes than a few paper cuts. However, many of our neighbors, especially the twenty-three million among us with diabetes, suffer from chronic, hard-to-heal wounds. They sometimes have limited mobility, lose time from work and miss out on family activities.

The wound care market is rising to meet the challenge of chronic wounds as well as surgical and trauma wounds. Market research firm, Kalorama Information, recently issued a report suggesting that the wound care market could reach $5.9 billion in 2009. Even with the current recessionary economic conditions, Kalorama analysts estimate that the sector can continue to grow 4.8% in each of the next five years. The business may not be entirely impervious to recession, but if Kalorama’s figures are reliable, wound care may be just the investment sector to heal the wounds in your portfolio.

Most of the leading wound care suppliers and service providers are gathered this week in Dallas, Texas for the Symposium on Advanced Wound Care. Their membership is a who-is-who in the wound care business. Johnson & Johnson (JNJ: NYSE) stands out among the leaders. Of course, JNJ is a highly diversified supplier of medical supplies and equipment. The stock trades at a multiple of 10.7 times forward earnings. Considering the current dividend yield of 3.8%, that presents a compelling value. Shares of JNJ have rebounded from the 52-week low set in March 2009.

Another significant player on the wound care scene around the world is Smith & Nephew (SNN: NYSE). In addition to advanced wound care management, Smith & Nephew also provides orthopaedic products. SNN depository receipts trade on the New York Stock Exchange and are priced at 10.6 times forward earnings and the stock is currently yielding 2.3% in dividends. A net profit margin of 9.9% and 21.5% return on equity are attractive.

If it is a pure play you are looking for, consider The Center for Wound Healing, Inc. (CFWH: OTC/BB). Based in New York, CFWH offers advanced wound care services in partnership with hospitals. One of the company’s specialties is Hyperbaric Oxygen Treatment (HBOT), an advanced wound care treatment that is gaining in popularity among physicians. New management completed a restructuring of the Company last year, turning heavy losses around to an 8.7% operating profit in the twelve months ending December 2008. The depressed stock price may not yet reflect recent progress.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has published research on CFWH for which it received compensation from the issuers or one of its agents.

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