AGILENT TECHNOLOGIES INC. $36 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 370.0 million; Market cap: $13.3 billion; WSSF Rating: Average) makes electronic test and measurement equipment. Manufacturers use these products to improve the reliability of a wide variety of electronic products, such as cell phones and communication network components. This business accounts for 60% of Agilent’s revenue.

The remaining 40% comes from measurement equipment for medical research labs and drug developers. Agilent’s products also help government agencies test for biological and chemical contaminants in air, water, soil and food.

Agilent’s revenue rose from $6.1 billion in 2003 (fiscal years end October 31) to $7.2 billion in 2004, but slipped to $6.9 billion in 2005. In 2006, revenue fell to $5.0 billion after Agilent sold its struggling chipmaking business. On October 31, 2006, Agilent handed out its remaining shares in its chip-testing subsidiary Verigy Ltd. (Nasdaq symbol VRGY) to its own stockholders as a special dividend. Despite the spin-off, Agilent’s revenue in 2007 rose to $5.4 billion.

Agilent lost $3.78 a share (total $1.8 billion) in 2003, due to writedowns and restructuring costs. But thanks to the success of these moves, earnings rose from $0.71 a share (total $349 million) in 2004 to $1.50 a share ($610 million) in 2007.

The company spent $685 million (12.6% of revenue) on research in fiscal 2007, up 4.6% from $655 million (13.2% of revenue) in 2006. Accounting rules force Agilent to immediately write off these outlays, so it’s more profitable than it appears.

Agilent’s high research spending helps it maintain its dominance in its niche markets. In fact, Agilent products currently test over half of the over 800 million cell phones produced each year.

Ongoing upgrades of wireless networks to handle high-speed traffic, plus the spread of Voice-over-Internet-Protocol (VoIP) phone systems, should spur more demand for Agilent’s products.

The company’s life sciences operations are also developing several promising new products. For example, Agilent is working on portable systems that can rapidly detect infectious diseases including anthrax and smallpox. Products like these have huge longterm potential.

Besides research, Agilent is using acquisitions to enhance its product lines. It recently agreed to pay an undisclosed sum for Velocity11, a private firm that makes robots than handle liquids and other substances. Velocity11’s automated lab systems help medical researchers improve the accuracy of testing data, and speed up research projects.

Agilent prefers to buy back stock instead of paying dividends. It has spend $6.5 billion on buybacks in the past three years, and now aims to repurchase $2 billion more over the next two years. Share buybacks improve earnings and cash flow per share for the remaining stockholders.

The company’s balance sheet is strong, so it can afford its buyback plan. Long-term debt of $2.1 billion is equal to 2.5 times its fiscal 2007 cash flow of $830 million or $2.04 a share. Agilent also has cash of $1.8 billion ($4.94 a share).

The stock is volatile, and has moved down from its recent peak of $40.42 in July 2007. It now trades at 20.6 times its forecast 2008 earnings of $1.75 a share, which is cheap in light of its high research costs. The stock is also attractive at 2.7 times its revenue of $13.35 a share.

Agilent is a buy.