About a month ago, I wrote an article here on why I thought medical device maker Stryker (NYSE:SYK) presented a good investment opportunity. Since that time the stock has reported earnings that beat published expectations and was received positively by investors. Since this Fool believes in keeping it simple, I say, "When you find a winner in an industry, look at the rest of the family to see if there are other companies with similar track records and future possibilities."

Guess what? There are two other members of the orthopedic/medical instrument family that present opportunities. Below is a chart that allows us to look at some common family traits among Zimmer Holdings (NYSE:ZMH), Biomet (NASDAQ:BMET), and Stryker. (There is another relative I have not included, the Depuy division of Johnson & Johnson (NYSE:JNJ). For the purposes of this discussion, I consider Johnson & Johnson more like a cousin, not an immediate family member.)

Stock Mkt Cap P/E Profit Margin Operating Margin Return on Equity
BMET 10.3 billion 32 21.54% 32.19% 24.74%
SYK 19.9 billion 41.8 12.73% 18.75% 24.61%
ZMH 19.6 billion 44 15.30% 26.74% 24.75%


As you can see from the chart, profit margins and operating margins at Biomet and Zimmer compare favorably to Stryker. Further examination finds a similar result when you look at other valuation measures such as revenue growth, earnings growth, and current ratios.

Fatherly concern
A cause for concern is the group's P/E multiple, which is well above the current market multiple. While arguments can be made for why this group should or should not command a higher multiple, I suggest just keeping things in perspective. Patience may be required to receive the full benefit as a shareholder.

Since we have already discussed Stryker, let's take a closer look at family member Zimmer Holdings (no offense meant to sibling Biomet).

Zimmer was spun off from Bristol-MyersSquibb (NYSE:BMY) in July 2001. (Considering Bristol Myers' troubles during this period, what a great decision to leave the nest.) Despite a national tragedy and the negative market environment that followed, investors have been rewarded with almost a threefold move.

Year-over-year quarterly earnings growth has exceeded 30% every quarter since June 2002. Management has also proven itself to be astute in identifying and purchasing assets that complement current products with the acquisition of Swiss competitor Centerpulse AG. This acquisition, completed last fall, made Zimmer the biggest player in its industry without compromising profitability or the balance sheet.

Proud parents indeed
What a great combination to find in management. An ability to manage current assets in good environments and bad, to grow internally with existing products, and the ability to identify complementary businesses that add to earnings and growth immediately.

Is it a stretch to think that this company also manages its research and development team with the same skill? One fact that I found interesting is that Zimmer is a leader in products that require noninvasive surgical procedures. This means that hip replacements are done on an outpatient basis. This translates into no hospital stays, which must be music to the ears of health insurers as well as patients.

Zimmer's first-quarter earnings, announced on Monday, came in at $0.56 a share versus the consensus estimate of $0.51. In addition to strong operating margins, this report card also finds management ahead of its integration schedule with Centerpulse. Judging from the small pullback afterward, superior performance is expected. However, if the past is any guide, investors should continue to be rewarded.

Each month, Tom and David Gardner highlight their two favorite investment ideas for subscribers of Motley Fool Stock Advisor. To learn more, click here.

Fool contributor Glen Trematore can be found training for endurance events in the parks of Virginia Beach. He has no stake in any of the companies mentioned here.