Healthcare Business

Other Medical Device Stocks at Risk After Intuitive Surgical Warning

Intuitive Surgical Inc. (NASDAQ: ISRG) has been the darling of momentum investors for years. Yesterday it gave short sellers the data they have waited for. Sales of its da Vinci robotic surgical system have plummeted and it preannounced revenue of $575 million, way below current estimates of $630 million. The medical device analysts at Deutsche Bank A.G. (NYSE: DB) think that while the large miss may be specific to Intuitive Surgical, capital spending at hospitals may be softer than expected. They have a list of medical device stocks to buy that do not rely on a single razor/razor blade product sales model to generate all of their revenues.

Covidien PLC (NYSE: COV) recently completed the divestment of its pharmaceutical unit, Mallinckrodt PLC (NYSE: MNK). The company had taken this initiative to streamline its business and focus on its remaining medical devices and medical supplies businesses. Management believes that the divestment will be beneficial to Covidien’s shareholders in the long term, as it will help the company focus on its high-margin surgical product portfolio. The Deutsche Bank price target for the stock is $68. The Thomson/First Call estimate is at $67. Investors receive a 1.8% dividend.

Johnson & Johnson (NYSE: JNJ) remains one of the best stocks to buy to bring diversity to portfolios. With a tremendous balance of consumer, pharmaceutical and medical device products, the company had increased dividend payouts for shareholders for the past 50 years. The Deutsche Bank target for the stock is $92, and consensus is at $91. Investors are paid a solid 3.0% dividend.

St. Jude Medical Inc. (NYSE: STJ) recently announced regulatory approval from the Japanese Ministry of Health, Labor and Welfare and launched of the Accent magnetic resonance imaging (MRI) pacemaker and the Tendril MRI lead. Unlike MRI-labeled devices currently available, the Accent MRI pacemaker is the only commercially available system with labeling that allows patients to undergo full-body MRI scans to accommodate their current and future medical needs. Deutsche Bank has a $52 price objective, and the consensus target for the stock is $47. Investors receive a 2.2% dividend.

Stryker Corp. (NYSE: SYK) provides reconstructive, medical and surgical, and neurotechnology and spine products for doctors, hospitals and other health care facilities. It also provides coils and stents for cerebrovascular surgery, or operations involving the blood vessels of the brain. There is increased demand for these instruments in the United States due to a high death rate for diseases of the cerebrovascular system. Due to high demand, the segment will generate revenue of $443 million by end of the fourth quarter. Deutsche Bank has put a $75 price target on the stock, while the consensus target is $69. Shareholders are paid a 1.6% dividend.

Tenet Healthcare Corp. (NYSE: THC), while not a medical device company, is included in the Deutsche Bank list of stocks to buy. The company operates 49 hospitals, including three academic medical centers, a children’s hospital and a critical access hospital, with a total of 13,216 licensed beds, serving primarily urban and suburban communities in 10 states of the United States, as well as a long-term acute care hospital and 117 freestanding and provider-based outpatient centers in 11 states, including diagnostic imaging centers, ambulatory surgery centers and urgent care centers. Deutsche Bank has a $55 price target, but the consensus target is lower at $51.

Between the capital expenditure question mark and the Obamacare 2.3% excise tax on medical devices, some investors have been very leery of owning some of these quality names. The key for investors is diversity. The last thing anybody needs in a portfolio is a one-trick pony. When the one trick hits critical mass, it sometimes means game over.