I made Zimmer Biomet (ZBH) Pick #6 in my “10 Stocks for Your Core Portfolio.” Now I’m adding it to my long-term 50 Stocks Portfolio.
Here’s what I wrote in that earlier post.
“Core Portfolio Pick #6: Zimmer Biomet Holdings (ZBH). Seems like everybody’s doing it. Getting a replacement knee or something. And joint replacements aren’t just for the oldest of the old anymore. By 2030, primary total hip replacement is projected to grow 171% and primary total knee replacement is projected to grow by up to 189 percent, for a projected 635,000 and 1.28 million procedures, respectively, according to a 2018 study by the Amerian Academy of Orthopaedic Surgeons. By 2060, primary total knee replacement is expected to reach 1.23 million (a 330% increase), primary total knee replacement is expected to reach 2.60 million (382% increase), and revision total knee replacement is expected to reach 110,000 (219% increase). The mean age for primary total hip replacement has declined from 66.3 years to 64.9 and knees from 68 years to 65.9. Since I don’t see any signs that aging is about to be banned, I think these trends are certain to continue. Which makes this exactly the kind of trend that you want to own at the core of your portfolio. But Zimmer Biomet, my pick for how to invest in this trend, is also a great example of why even these core picks aren’t buy-and-forget stocks. These companies do stumble–and when they do it’s often time to load up the truck. Zimmer Biomet stumbled badly over the last 5 years. The company struggled with regulatory, inventory management, supply chain issues, and the merger of Zim,mer with Biomet. In 2022, which turned out to be the last year of these struggles, the stock opened on January 3 at $121.42 and managed to go nowhere positive for the next 10 months, trading at $114.09 on November 14. But since then shares have seen a turn upwards to the June 12 close of $135.53 and a gain of 11.36% in the last 3 months. But because of investor memories of those struggles, the stock traded, according to Morningstar, at a 22% discount to fair value on June 9. Morningstar forecasts relatively moderate earnings growth of 5% for Zimmer Biomet in 2023, but, Morningstar also points out that the company’s growth will go on and on and on. Customers, the surgeons who perform all those joint replacements, have strong reasons not to switch suppliers. Once a surgeon has learned one set of tools and procedures he or she is unlikely to switch to a new supplier. The familiarity with Zimmer Biomet products can stretch all the way back to medical school. This means that changes in share in this market occur at (pre-global warming) glacial speed. Zimmer Biomet looks to add to growth and to defend its market share with its Rosa robot system, and expansion of the company’s digital portfolio. The stock trades at a trailing 12-month price-earnings ratio of 63.56 and a forward PE on projected earnings of just 19.01. The stock pays a small 0.71% dividend. With a market cap of $28 billion, Zimmer Biomet could pass as a small-cap stock in the current market.”
