(MONEY Magazine) – STOCK OF THE MONTH MANOR CARE INC. SYMBOL: MNR; NYSE, $29; 0.3% YIELD

Cutbacks in Medicare and Medicaid spending may be inevitable, but there's no need to worry about the health of Manor Care Inc. One of the nation's largest nursing-home operators, the Silver Spring, Md. company is thriving with 180 nursing homes and other health-care facilities in 28 states, and a hotel division that includes such budget oases for the weary traveler as Comfort Inn and Econo Lodge. These fast-growing businesses have boosted Manor Care's earnings at a robust 17% average annual rate for the past five years. Although the stock trades at a slight premium to the market at 18 times '95 earnings, analysts believe it remains a buy. "Manor Care is the creme de la creme in the managed-care industry," says Marie Conway of NatWest Securities, "and any reduction in Medicare or Medicaid reimbursements would only be a plus for the stock."

How so? Affluent patients who can cover their own care account for 60% of the company's nursing-home revenues. Thus Manor Care is less likely than many of its rivals to suffer seriously from any cutback in government spending. Moreover, predicts Conway, "Many weaker nursing-home operators will fall by the wayside, making it possible for Manor Care to grow more aggressively by acquisition."

Declining government reimbursements will be more than offset by Manor Care's rapid growth, says Prudential Securities' Thomas McGinnis. This year, the company plans to acquire or build as many as 14 new nursing homes and chronic-care centers for Alzheimer's patients, plus another 12 facilities in 1996 for people recovering from surgery or other short-term illnesses.

Manor Care's lodging business accounts for 25% of the company's $1.5 billion in revenues. Earnings growth has averaged a sizzling 20% a year, and the company has announced plans to build or acquire another 7,000 hotels by 2010 on top of the 3,400 it already owns in more than 30 countries. Analysts suspect Manor Care might spin the hotels off in two or three years to invest more in nursing homes. If so, that could work out to a $20-a-share dividend. But even without the spin-off, McGinnis anticipates that the stock's price will climb 40% to $41 over the next 18 months.

--Penelope Wang