With the U.S. economic recovery in question, one portfolio manager recommends turning to Chinese medical-device maker Mindray (MR) as a way to capitalize on two sectors that he says are set to explode in the coming years. 

Rob Lutts, president and chief investment officer at Salem, Mass.-based Cabot Money Management, said investing in China and health care is a safe bet. 

With that in mind, Lutts has been snapping up shares of Shenzhen, China-based Mindray, which he believes could double its stock price in the not-too-distant future.

Lutts says Mindray is uniquely positioned to cash in on China’s growing demand for cheap medical devices to improve its dilapidated health-care system. He said recent visits to the country have underscored how outdated some hospitals there are.

“It’s like walking into a hospital 60 years ago in the United States,” said Lutts, who manages about $400 million.

Mindray, which had sold nearly 400,000 devices in 160 countries worldwide as of the end of last year, makes patient monitoring and life support devices such as defibrillators, anesthesia machines and surgical lights. The company also makes in-vitro diagnostic products like chemistry and hematology analyzers.

Lutts said Mindray’s “secret” is coupling high performance with very low cost, a combination that has helped the company’s after-tax profit margins to often exceed 20%.

“We think it’s possible for this company to grow earnings 20% to 25% a year,” said Lutts.

Mindray’s stock has vastly outperformed the S&P 500 so far in 2009, surging 56%. The company’s stock has jumped 16.6% over the past four weeks alone, compared to a 4.5% drop in the S&P. 

Lutts said he thinks Mindray’s stock will match his prediction for stellar earnings growth.

“I see no reason why this company can’t grow 20% a year over the next five years. In four years time, a double is possible,” he said.

Of course, growth projections like that don’t come cheap -- Mindray’s $27 stock comes with a hefty price-to-earnings ratio of 24.7.

“That doesn’t scare me. You have to pay for the growth,” said Lutts, who bought the stock a month ago when the P/E was at 16. “That was a bargain. It’s a little less of a bargain now but it’s an ideal company.”

It’s ideal because the vast majority of its revenue is derived from China, the world’s fastest-growing economy, said Lutts.

“At 8% to 10% growth per year, the [Chinese] economic system can just about double every eight years. “I am very enthusiastic about the emerging markets,” he said.

Aside from geographical advantages, Mindray benefits from its low infrastructure and tax costs, as well as its formidable research and development operation. Mindray, which has more than 1,000 engineers, says it commits to investing 10% of its revenue to R&D every year.

“An engineer is fairly low cost in China. So throw a lot of resources into technology and they come up with good products,” said Lutts.

With that in mind, Mindray says it expects to introduce six to eight new products each year.

Of course, Mindray is not without risks, as evidenced by its recent attempt to expand.

Lutts said he sold his original position in Mindray after the company acquired U.S.-based DataScope in 2008 for $202 million. 

“Success often causes you to do something you didn’t need to do. They didn’t need to buy that company. I think that caused them to stumble a little bit,” said Lutts.