BAXTER INTERNATIONAL INC. $52 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 620.2 million; Market cap: $32.3 billion; WSSF Rating: Average) makes medical equipment through three main divisions. Medical Delivery makes intravenous equipment and systems (38% of 2007 sales); BioScience makes various vaccines and drugs (41%); and Renal makes dialysis equipment (20%). Other products account for the remaining 1% of sales.

Baxter continues to enjoy the benefits of its plan to focus on its more profitable operations, particularly vaccines and drugs that treat hemophilia, immune disorders and infectious diseases. The company has also sold its less profitable businesses, and cut costs.

In the third quarter of 2008, Baxter’s earnings grew 22.9%, to $563 million from $458 million a year earlier. Earnings per share rose 25.7%, to $0.88 from $0.70, on fewer shares outstanding. These figures exclude unusual items. Revenue rose 14.5%, to $3.15 billion from $2.75 billion.

Baxter holds cash of $2.2 billion or $3.53 a share, and long-term debt of $3.2 billion is equal to one year’s cash flow. That gives it plenty of room to expand investments in research. It spent $230 million (7.3% of revenue) in the latest quarter, up 13.3% from $203 million (7.4% of revenue) a year earlier.

Thanks to this heavy research spending, Baxter has several promising products under development that should fuel its growth for years to come.

For example, a new system that lets patients give themselves a dose of a certain drug at home instead of going to a doctor’s office has strong profit potential.

Baxter’s shares have dropped 25% in the past three months. They now trade at a reasonable 15.5 times its likely 2008 earnings of $3.36 a share. The company also recently increased its quarterly dividend by 19.5%, from $0.2175 a share to $0.26. The new annual rate of $1.04 yields 2.0%.

Baxter is a buy.