If you play the market, it’s no time to be an economic boob. The facts speak for themselves. Rising interest rates, high oil prices, and diminishing consumer demand add up to an economic slowdown and stepped-up earnings pressures in the months ahead. In fact, the ugly “R” word (recession) is popping up with growing frequency in Wall Street research memos as a 2006 possibility.

Since it all conjures up the likelihood of a slew of stock bashings for those companies that fall short of earnings expectations, latching on to companies with solid and reasonably assured earnings growth would seem to be a sensible way to combat the boogeymen (those names that are especially vulnerable to earnings disappointments).

If you share this thinking and you’re seeking investment medicine to counteract a bout of potential earnings ills, take a hard look at key players in the medical equipment industry, such as stents, pacemakers, and components for knee and hip replacement. It’s a $110 billion industry and one of the strongest pillars of the health care sector. Analyst Bob Sweet, who plies his trade at the Dow Theory Forecasts Newsletter in Hammond, Ind., thinks participation in the medical device industry is an effective way to combat potential bottom-line ailments. Likewise, he offers some imposing earnings numbers to bolster his argument. For example, the medical equipment group posted 23% earnings growth over the last 12 months and Mr. Sweet sees another 22% increase over the next 12 months. On top of that, market-beating annual earnings gains of 20% are pegged over the following five years.

Okay, let’s say you buy Mr. Sweet’s sugary view of the industry. What’s the best way to play it? He has two favorites – Biomet and pharmaceutical biggie Johnson & Johnson, the largest player in medical equipment, which generates 36% of its business (or $16.9 billion) from medical devices and diagnostics. Although he’s not buoyant about the stock market’s overall prospects this year, Mr. Sweet, nonetheless, thinks the two stocks could generate gains of 12% to 15%, or more, over the next 12 months.

In the case of Biomet, it’s expected to introduce several new products over the next 18 months, solidifying its position in knee and hip replacements. With the addition of a polyethylene liner that recently got marketing clearance from the Food & Drug Administration, Biomet will offer products designed to ensure a smooth seal and wide range of motion for all types of hip-replacement components. The company, Mr. Sweet points out, is poised to increase its market share in the knee and spine segments. Its new unicompartmental knee is said to compare favorably to rival products, while an acquisition last year greatly improved Biomet’s profile in the high-growth spinal surgery market. Earnings are pegged at $1.57 a share for the 12 months ending in May 2005, and $1.82 in May 2006.

J&J, in turn, holds strong positions in the market for cardiac stents and orthopedic implants, and its pending $24 billion purchase of medical device maker Guidant Corporation will bolster its stent business and provide a foothold in the lucrative market for implantable cardioverter defibrillators and pacemakers. Further, Guidant has a robust product portfolio and several new products under development. In addition, another J &J acquisition is in the works that should fatten its product portfolio: the purchase of Closure Medical, a maker of surgical glue, for $370 million. J&J earnings estimates call for $3.40 a share this year, up from $3.10 in 2004.

Significantly, whereas stocks of drug companies have fared badly over the past two years, falling an average 10%, medical device makers have shown far more stamina, with half of those tracked by Dow Theory Forecasts averaging gains of at least 9% a year.

Understanding why the two are performing so differently is important since many investors are said to be fearful of anything to do with health care because of the thrashing administered to drug giants Pfizer and Merck stemming from product-related problems. In brief, the fate of both drug and device makers depends heavily on how much Medicare chooses to reimburse for treatments, and so far it appears to be more generous with its reimbursement of devices than it is with drugs. The lack of pressure from the public and special-interest groups probably plays a role in that policy. Likewise, activists can use low-priced generics as a leverage against branded drug makers; device makers, on the other hand, are a tougher target.

Some other sweet plusses for medical device makers, as outlined by Mr. Sweet:

* The industry should benefit from the same demographic trends – an aging population and greater foreign demand – that supported drug stocks during less trying times.

* Generics are not an issue in the medical device market as they are in drugs, where rival firms can easily duplicate a product once the patent expires. On the other hand, many medical devices require more specialized, expensive equipment to get into production.

* Medical equipment companies continue to release a slew of new products, seemingly enabling them to avoid the decline in research and development productivity that plagues drug makers.

* Pricing, which has been favorable in recent years, continues upward. Accordingly, companies with strong franchises and product pipelines should continue to deliver growth regardless of economic swings.