Morningstar Advisor - October/November 2009 - 58

Investments á la Carte Four Picks for the Present Exchange-Traded Fund iShares Dow Jones US Medical Devices IHI $14K devices tend to command roughly the same prices worldwide. The demand picture looks bright for these firms: An aging population demands more joint replacements and cardiovascular operations, continued innovation in diagnostic instruments creates whole new markets, and emerging economies trading up to Western best practices in medicine should provide a nice tail wind for years to come. Bradley Kay Stock Becton, Dickinson BDX $18K S&P 500 TR overseas, and its push is paying off: The firm is seeing switching from traditional to safety-guarded sharps. This trend is particularly evident in developing countries, where the prevalence of infectious diseases makes Becton’s single-use, safety-engineered needles and syringes valuable to both nurses and patients. Our favorable take on Becton’s prospects also stems from our confidence in the firm’s management. Becton has a history of allocating its capital wisely and providing shareholders with solid returns on investment. The company’s reputation for searching out pockets of growth, along with its sizable manufacturing and distribution infrastructure, convinces us that Becton will be able to fend off competition and continue to defend and widen its economic moat. Haywood Kelly Separate Account Champlain Small Cap Equity $16K After the massive stock market rally, it has become much harder to find undervalued corners of the market. Fear of potential cost 18000 controls in health insurance reform legislation has kept health-care stocks down during the 14000 current rally, but we believe medical devices face few of the problems 10000 holding down Big Pharma valuations, making these companies a very attractive 6000 bargain at today’s prices. 14 S&P 500 TR Becton, Dickinson’s needle and surgical Medical devices typically work on a faster product cycle than pharmaceuticals, keeping a 16000tool empire has provided investors with robust 14000 returns on capital for years. Now, largely steadier stream of innovative products. 12000 because of the company’s decades-long Thus very few of these firms face the patent Jun-06 Jun-07 Jun-08 Jun-09 dedication to innovation and wise deployment losses that currently threaten profitability at 10000 theNov-06Apr-07 Oct-07Mar-08 Sep-08Feb-09 Jul-09 8000 capital, its business is prospering and largestMay-07 Nov-07Apr-08 Oct-08Mar-09 Jul-06Dec-06 pharmaceutical companies. Apr-09 Aug-06Jan-07 Sep-06Feb-07 Oct-06Mar-07 Dec-07 Jan-08 Feb-08 May-08 Nov-08 May-09 Dec-08 Jan-09 Aug-09 of Jul-07 Aug-07 Sep-07 Jul-08 Aug-08 its investors remain amply rewarded even in Furthermore, cost controls from U.S. health 6000 this challenging economic environment. insurance reform legislation will likely not have much effect on revenues or profits at medicalBecton made a name for itself manufacturing device companies. Their customers are basic surgical instruments: needles, individual doctors and hospitals rather than the syringes, and scalpels, among others. As the major distributors who buy pharmaceuticals, industry evolved, so did the company’s giving device companies greater pricing power products, with many significant technological due to their disaggregated purchasers. innovations first introduced at Becton. The Also, the faster innovation cycle demands Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 launch of safety-engineered products designed that each product update proves its cost-effectoJun-05 May-06 Mar-07Oct-07is Jul-08Feb-09 prevent needle-stick injuries May-08 Mar-09 among tiveness to a degree that government procurers Feb-05Sep-05Apr-06 Dec-06Jul-07Feb-08Sep-08Apr-09 Mar-05 Feb-06 Oct-06 Jun-07 Mar-08 Nov-08 Jul-09 Apr-05 Mar-06 Nov-06 Aug-07 Apr-08 Dec-08 Aug-09 May-05 Jul-05 Aug-05 Jun-06 Apr-07 Jul-06 May-07 Aug-06 Sep-06 Sep-07 Jun-08 May-09 Nov-07 Aug-08 Jun-09 Oct-08 Oct-05 Nov-05 Dec-05 Feb-07 Dec-07 the firm’s latest achievements; these almost always find satisfactory. While products are now mandatory in most hospitals pharma companies charge lower prices in other across the United States. Becton has also been developed countries due to the bargaining advocating greater use of safety products power of government drug purchases, medical 12 S&P 500 TR 8 05 06 07 08 09 This small-growth separate account does it all. It has generated topnotch long-term returns with below-average volatility. Manager Scott Brayman and team built a great record at Sentinel Small Company SAGWX before striking out on their own and founding Champlain Investment Partners in 2004. Brayman and his team focus on a limited set of sectors they know best. They emphasize consistent and predictable growers with strong niche businesses over speculative fare. Take 58 Morningstar Advisor October/November 2009 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Morningstar Advisor - October/November 2009

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