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In this screen, we look at stocks with some degree of risk as well as ample projected 3- to 5-year price appreciation potential. Although most investors would prefer to have low risk and high potential returns, the number of equities that can realistically meet both these criteria are rather limited. Therefore, we have chosen not to include a low-risk requirement in order to attain a broader field of equities to choose from.

We started off by screening for issues with Safety ranks of 4 and above, as well as Price Stability Scores that were in the 50th percentile or greater. The minimum Financial Strength Rating for this screen was a B. In order to incorporate a value element, we excluded stocks that have beaten the return of the S&P 500 index thus far in 2013, which is now at approximately 14%. Finally, the stocks were required to have a projected 3- to 5-year price change percentage of at least 90%. The resulting list of 28 stocks can be seen below. Out of the list, we have chosen to highlight Edwards Lifesciences (EW), a maker of heart valves and health monitoring systems with 97% projected 3- 5-year price appreciation potential.

Edwards Lifesciences

Edwards Lifesciences is a global leader in products and technologies designed to treat advanced cardiovascular disease. The company focuses specifically on technologies that treat structural heart disease and critically ill patients. Cardiovascular disease is the number-one cause of death in the world, and is the most expensive disease in terms of health care spending in nearly every country. The affliction is progressive and worsens over time, often affecting the entire circulatory system. It frequently requires surgical intervention, especially in its later stages. It’s estimated that half a million people in the U.S. currently have a severe form of aortic stenosis.

The company's cardiovascular disease treatment products are sold through three divisions. The first, Surgical Heart Valve Therapy, produces devices used to replace or repair a patient's diseased or defective heart valve. The product line is centered on the Perimount pericardial valve, the most widely prescribed tissue heart valve in the world. These are produced from biologically inert animal tissue sewn onto proprietary wireform stents. Products from the Transcatheter Valve unit have the same goal as the surgical products, but are less invasive than traditional devices as they are delivered via a catheter through the upper leg, the wall of the heart, beneath the collar bone, and or through a minimally invasive surgical incision into the aorta. The procedure is done in patients who are inoperable or at high risk of surgical complications. Transcatheter products have proven to enable relatively high survival rates and patient quality of life. The main product line is SAPIEN, it consists of balloon-expandable tubular metal stent with valve fashioned out of bovine tissue mounted within. Together, Surgical and Transcatheter accounted for 65% of EW’s top line in 2012.

Edwards is also at the forefront of hemodynamic monitoring systems, used to measure a patient’s heart function in surgical and intensive care settings, forming the core of the critical care unit, which accounted for 26% of sales in 2012. These systems enable a clinician to balance oxygen supply with demand in a critically ill patient, and are important in assuring tissue and organ perfusion.

Edwards sells both domestically and internationally. U.S. sales, which accounted for 43% of the top line in 2012, are conducted almost entirely through its direct sales force. International sales, by contrast, are derived from both the direct sales force and independent distributors. Of the total international sales, 30% were in Europe, 15% in Japan, and 12% from the rest of the world. The company has a wide client base, and no single customer accounted for more than 10% of sales in 2012.

The company recorded solid results in the second quarter, with underlying top-line growth eclipsing 10% (excludes currency translation). Still, the shares have yet to recover from a steep drop in price last April, following disappointing operating results in the Transcatheter unit. Its performance appears to have turned around in the second quarter, but investors remain cautious as full year guidance was only maintained, not raised. Long term, the company expects more doctors to gain familiarity with the procedure, Transcatheter Aortic Valve Implantation (initially performed in 2002), and thinks the number of hospital beds available ought to continue to rise. Other drivers that support our positive estimate for long-term price appreciation are the aging baby boomer generation, emerging markets, and increased diagnosis of heart disease in people with few noticeable symptoms. 

Overall, these share offer compelling long-term growth at a reasonably attractive valuation. Still, the shares carry a degree of risk, and should probably be avoided  by more conservative investors.

 

Company

Ticker

Apple Inc.

AAPL

Cognizant Technology

CTSH

Edwards Lifesciences

EW

IAC/InterActiveCorp

IACI

Imperial Oil Ltd.

IMO

Infosys Ltd. ADR

INFY

Amer. Eagle Outfitters

AEO

Amer. Tower 'A'

AMT

Arris Group

ARRS

Ascena Retail Group

ASNA

Broadcom Corp. 'A'

BRCM

Can. Natural Res.

CNQ.TO

Cutera, Inc.

CUTR

Dick's Sporting Goods

DKS

EarthLink, Inc.

ELNK

Encana Corp.

ECA

Equinix, Inc.

EQIX

ESCO Technologies

ESE

Hologic, Inc.

HOLX

Itron Inc.

ITRI

Konami Corp. ADS

KNM

Linn Energy, LLC

LINE

ManTech Int'l 'A'

MANT

Resources Connection

RECN

Tetra Tech

TTEK

Thoratec Corp.

THOR

Vitamin Shoppe

VSI

Windstream Corp.

WIN

At the time of this article's writing, the author did not have positions in any of the companies mentioned.