Baxter International Inc. $56 - New York symbol BAX

BAXTER INTERNATIONAL INC. $56 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 644.7 million; Market cap: $36.1 billion; WSSF Rating: Average) makes medical equipment through three main divisions. Medication Delivery makes intravenous equipment and systems (roughly 40% of sales); BioScience makes various vaccines and drugs (40%); and Renal makes dialysis equipment (20%). Baxter gets 55% of its revenue from overseas customers. The company is still having problems with its Colleague medication delivery pumps. Earlier this year, it had to recall 4,500 of the 280,000 pumps in service to fix a defect that could inject too much medication into a patient. Baxter also had to recall 1,500 more pumps after three employees falsified repair, testing and other data. However, the company’s quick response will probably limit the financial impact, as well as any long-term damage to its reputation. Baxter continues to spend 6% of its sales of roughly $16.50 a share on research. That has helped it develop several promising products, particularly new drugs and vaccines. For example, its Hylenex compound improves the absorption of other injected drugs. This product should receive FDA approval in a year or two. Baxter is also working on a way for diabetics to inhale insulin instead of injecting the drug. The company also has high hopes that a treatment it developed to help patients with weakened immune systems can also slow the progression of Alzheimer’s disease. The drug is still in the early stages of clinical testing, but could be a big seller. Baxter is in a strong position to profit from increased spending by Medicare and public health agencies in other countries on preventative treatments such as flu shots. Baxter’s expertise with vaccines is paying off. It recently won a contract from UK health officials to supply flu vaccine in the event of a pandemic. Baxter is also working on a new vaccine for avian (bird) flu. Instead of using the traditional method of growing vaccines inside chicken eggs, Baxter uses fermenting tanks. This greatly speeds up production, and gives scientists time to adjust the formulation for new strains of the influenza virus. Thanks to the success of its new medical devices and drugs, plus the cost savings from a recent restructuring plan, Baxter’s earnings should grow 21% in 2007, to $2.69 a share. The stock trades at 20.8 times that estimate, which is cheap in light of Baxter’s improving prospects. The $0.67 dividend yields 1.2%. Baxter is a buy.