By Lee Samaha - July 17, 2012 | Tickers: ABT, COV, ISRG, JNJ | 0 Comments

Lee is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

Investors have been keen to bid up defensive sectors recently but one stock seems to have been left behind in the rush. Tyco spinoff Covidien (NYSE: COV) appears to be unloved by the market, yet its mix of stable single digit revenue growth plus double digit earnings growth and high cash flow generation is quite compelling.

Moreover, the future spinoff of its low growth pharmaceuticals division will allow the management to fully focus on medical devices. Reductions in headcount and facilities over the last few years have generated operational efficiencies that have led to margin improvement. This company is well run, it trades at a discount to its peers and I think it's well worth a look for risk adverse investors.

Covidien Offers a Mixed Growth Opportunity

In this article I am going to focus on medical devices. A graphic depiction of Covidiens offerings by product line reveals the mixed performance over the last few years.

Whilst Soft Tissue Repair and Airway & Ventilation growth has been hard to come by, Vascular and in particular Energy growth has been strong. Oximetry & Monitoring and Endomechanical growth has slowed this year. The company is currently tracking ahead of its internal 2-5% overall growth for medical devices but it has been clear in articulating that headwinds would get stronger in the second half. In addition there is one less trading week this year.

Endomechanical and Energy Products are Driving Growth

Together these product lines make up 46.8% of medical device sales, and Energy has consistently generated double digit revenue returns in recent years. Endomechanical and Energy devices in surgical procedures are increasingly being used in a drive to shift surgical procedures from open toward minimally invasive surgery (MIS). The big advantage of MIS is that it tends to lead to better patient outcomes, which in turn creates shorter hospital stays and less post-surgery complications. Both of which reduce hospital costs.

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An Undervalued Health Care Stock