I recently got the kind of news that no child wants to hear about an aging parent.
Here’s the thing, I count my blessings that my dad lived so long. After all, he’s a retired Marine Corps captain who saw three tours of combat, one in Korea and two in Vietnam.
Honestly he’s lucky he lived as long as he did. But that still doesn’t make the aging process any easier, at least not on the body.
He recently had a second knee replacement that didn’t go as well as planned. He also has swelling of the feet. His mobility is not all that great, and he can’t drive right now.
At 86, he recently learned he has congestive heart failure. That’s a condition in which the heart doesn’t pump as strongly as it should, leading to a buildup of fluids.
As such, my dad is part of a huge trend in America. Fact is, according to the American Heart Association, cardiovascular disease is set to have an economic impact of $1.1 trillion by 2035.
A Legacy of Expertise
To say that my dad and I are close is an understatement. He’s the one who got me interested in high tech and defense in the first place.
After leaving the Marine Corps, he became the senior military editor for Aviation Week & Space Technology. For a time, he had a military technology newsletter, and I was his Silicon Valley bureau chief.
We don’t talk as much as we used to, but, for many years, we got on the phone once a week or so to chat about tech and issues of the day.
I recently visited him in his home in suburban Virginia, and I was pleased to see him in great spirits. He seems pretty nonplussed by it all.
Beyond medication, there’s not much doctors can do at present to treat his heart. The good news is that he could manage the condition and live several more years.
But for millions of folks with heart disease, more significant medical intervention is often required. Indeed, heart disease remains the leading cause of death in the U.S., claiming more than 650,000 lives a year.
The impact here is staggering. The American Heart Association expects the cost of cardiovascular disease to rise to $1.1 trillion by 2035.
Clearly, a life sciences leader with products that can help heart patients is doing a huge public service and faces massive upside for its stock.
Enter Edwards Lifesciences Corp. (EW). It’s focused on aortic stenosis, a condition marked by an abnormal narrowing of the heart’s aortic valve. Edwards is the leader in minimally invasive devices for this field.
With that in mind, let’s run it through my five rules for finding market-crushing tech leaders. Take a look:
Tech Wealth Rule No. 1: Great companies Have Great Operations.
These are well run firms with top-notch leaders.
This is a company that has remained at the leading edge of heart valve technology since it helped found the sector decades ago. Today, its products define state of the art and are used in more than 100 nations.
It’s the world’s leading provider of transcatheter heart valve therapy (TAVT). With this minimally invasive approach, surgeons repair the old heart valve without removing it. Instead, they use a small catheter to install a replacement that takes over for the damaged tissue.
Make no mistake. This is a very well run firm. It has operating margins of nearly 29%, with a 27% return on stockholder’s equity. Edwards brings in $540 million a year in free cash flow.
Tech Wealth Rule No. 2: Separate the Signal from the Noise.
To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.
If you just looked at the headlines about how medtech firms are out of favor right now, you might have taken a pass. But ignoring this winner has huge opportunity costs.
Since the market rebounded last Dec. 24, the S&P 500 is up a respectable 24%. But EW more than doubled that figure, rising 61% over the same period.
Tech Wealth Rule No. 3: Ride the Unstoppable Trends.
Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
Unfortunately, the trend line here is not good for America. Our high obesity rates are pushing an increase in heart disease. The American Heart Association says that, in 2035, cardiovascular disease will afflict some 131.2 million Americans, or roughly 45% of the U.S. population.
With its unbeatable tech, Edwards is here to help. Last March, a new study showed that patients who underwent TAVR experienced a 46% reduction in death, stroke and re-hospitalization compared to those who underwent surgery.
Tech Wealth Rule No. 4: Focus on Growth.
Companies that have the strongest growth rates almost always offer the highest stock returns.
Considering how long the firm has been around, its results here are very strong. The nature of things in tech and the life sciences is for mature members to lose ground to upstarts.
But Edwards grew sales in its most recent quarter by 15%. That means it’s moving at a rate that is nearly six times faster than the overall U.S. economy. That was a nice bump up from its three-year average of 12%.
Tech Wealth Rule No. 5: Target Stocks That Can Double Your Money
This is where we look at the firm’s earnings growth and see how long it will take to double profits. By doing that, we can figure out how long on average it should take for the stock to roughly double.
After pouring through the financials in details, I’m projecting that earnings per share will grow at an average of 20% a year.
I believe this is a conservative forecast. See, over the past three years, the firm has grown per-share profits by 25%. I cut that by 20% just to be cautious.
Now we use what I call my “doubling calculator”. Mathematicians call it the “Rule of 72”. Let’s divide the number 72 by the compound profit growth rate of 20%. The result tells us that it should take about 3.5 years for Edwards to double in value.
This is one of those stocks where it really pays to ignore Wall Street’s concerns about health care firms and look at the big picture.
I believe Edwards will remain at the forefront of treating heart disease for many years to come, giving this winner a very long runway.
Cheers and good investing,
Michael A. Robinson