Could Cash Machine Zimmer Biomet Stock Be Your Next Buy?

Zimmer Biomet (ZBH) could be a good pick for your portfolio, with its high cash yield, good fundamentals, and discounted valuation. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market

What Is Happening With ZBH

ZBH may be down -14% so far this year but is now trading at P/S (Price-to-Sales) ratio that is at a meaningful discount to its 3-month and 2-year highs, and also belowits 3-year average.

The stock may not reflect it yet, but here is what’s going well for the company. While third-quarter revenue slightly missed expectations and full-year organic constant currency growth guidance was narrowed due to international headwinds, U.S. organic revenue grew 5.6% driven by strong adoption of key new products and robotic placements. Recent acquisitions, including Monogram Technologies and Paragon 28, expand its portfolio in areas like robotics and foot & ankle. New product approvals, such as the iodine-treated hip and ROSA Knee with OptimiZe, alongside positive pricing trends, underscore continued innovation and market presence.

ZBH Has Good Fundamentals

• Good Cash Yield: Not many stocks offer free cash flow yield of 7.9%, but Zimmer Biomet stock does
• Strong Margin: Last 12 month operating margin of 18.7%
• Growth: Last 12 revenue growth of 5.5% – low growth, but this selection is all about high yield and margin
• Valuation: ZBH stock currently trading at 31% below 2Y high, 14% below 1M high, and at a PS lower than 3Y average.

Below is a quick comparison of ZBH fundamentals with S&P medians.

*LTM: Last Twelve Months

But What Is The Risk Involved?

While ZBH stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. ZBH hasn’t been immune to big drops either. It fell 65% in the Global Financial Crisis and close to 50% during the Covid pandemic. The 2018 correction saw a more modest, but still painful, 26% dip. Even the inflation shock last year pushed it down over 40%. Solid fundamentals matter, but when volatility hits, even strong stocks can get hit hard. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read ZBH Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

For more details and our view, see Buy or Sell ZBH Stock.

Stocks Like ZBH

Not ready to act on ZBH? Consider these alternatives:

1. PayPal (PYPL)
2. Global Payments (GPN)
3. Clorox (CLX)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Dipped last month & meaningfully below 2Y high
3. Current P/S < last few year average
4. Strong operating margin with no instances of large margin collapse
5. High free cash flow yield

A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:

• Average 6-month and 12-month forward returns of 10.4% and 20.4% respectively
• Win rate (percentage of picks returning positive) of about 74% for 12-month period
• Strategy consistent across market cycles

Portfolios Over Individual Stock Picks

Individual stocks can soar or tank but one thing matters: staying invested. The right portfolio can help you stay invested, capture upside and mitigate the downside associated with any individual stock.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.