Recent hip replacement surgery prompted me to take a look at some of the companies making artificial joints to see whether there may be some investment opportunities.

Joint replacement is an increasingly common procedure in the United States. A 2007 report from the Healthcare Cost and Utilization Project found hip and knee replacement surgeries increased by 32% and 69%, respectively, between 1997 and 2005, and demand is expected to double again over the next two decades. In addition to potential growth in the U.S., emerging market growth is expected to drive demand.

Despite favorable long-term growth prospects, manufacturers are mentioning demand having been depressed recently by the weak economy. But that adds pent-up demand to the growth story in the future.

The big players in artificial joints are Zimmer Holdings (NYSE: ZMH), Stryker (NYSE: SYK), Smith & Nephew (NYSE: SNN), and Johnson & Johnson's (NYSE: JNJ) DePuy unit.

Company

PE (forward)

Estimated Growth
 (5 years)

Orthopedic revenue as % of total revenue (most recent quarter)

Dividend

CAPS Rating (out of 5)

Zimmer

11.2

9.7%

75%

NA

****

Smith & Nephew

13.2

12.0%

54%

1.6%

****

Stryker

14.4

10.5%

58%

1.2%

*****

Johnson & Johnson

12.9

6.1%

9%

3.3%

*****

Source: Yahoo! Finance and author's calculations.

All four companies are trading at reasonable valuations based on 2011 earnings estimates, and all four are rated four or five stars (out of five) in CAPS. But the stocks aren't all suited for the same type of investor.

If you're looking for the most exposure to the potential increase in joint replacements, Zimmer generates the highest percentage of revenue from orthopedic implants. Smith & Nephew and Stryker offer a little more diversified revenue stream and slightly higher growth forecasts than Zimmer, but still generate most of their revenue from orthopedic implants. Johnson & Johnson is a big player in replacement joints, but its wide range of business operations make it a good choice for an investor looking for a diversified health-care company and dividend income, but a poor choice for someone looking to invest based on projections of growing joint replacement surgery.

What's your opinion? Is this a solid investment theme or is the growth already in these stocks' prices?

Related Foolishness:

Stryker is a Motley Fool Inside Value pick. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Income Investor recommendation. The Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Russ Krull has a brand-new Zimmer hip and owns shares of Johnson & Johnson, but has no position in any other company mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.