BAXTER INTERNATIONAL INC. $63 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 627.4 million; Market cap: $39.5 billion; WSSF Rating: Average) makes medical equipment through three main divisions. Medication 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.

Earlier this year, Baxter recalled its blood-thinning drug heparin due to severe allergic reactions in patients who received a high dosage of the drug in a short period of time. The FDA identified a Chinese facility that makes a certain ingredient in heparin as a possible source of this problem. Heparin accounts for less than 1% of Baxter’s total sales.

Baxter also continues to have problems with its Colleague medication delivery pumps. In 2007, it recalled roughly 2% of pumps in service to fix a defect that could inject too much medication into a patient. The company is now re-designing the Colleague pump, and aims to relaunch it in 2009.

These two recalls cut Baxter’s pre-tax earnings in the first quarter of 2008 by $72 million. Despite these charges, overall earnings still rose 6.5%, to $429 million from $403 million. Earnings per share grew 9.8%, to $0.67 a share from $0.61, due to share buybacks. Revenue rose 7.4%, to $2.9 billion from $2.7 billion. International customers account for roughly 60% of Baxter’s total sales, and most of the higher revenue was due to the weaker U.S. dollar.

Baxter continues to spend around 7% of its revenue of $17.65 a share on research. This has helped it develop several promising new products, including its Gammagard therapy for Alzheimer’s disease. It will take Baxter at least three more years to complete its clinical tests, but Gammagard could be a big seller.

Baxter should earn $3.22 a share in 2008, which gives it a p/e of 19.6. The $0.87 dividend yields 1.4%.

Baxter is a buy.