The second-largest supplier of pacemakers and heart stents in the United States appears on an MSN Money list of recommended stocks.
A weak economy and a questionable acquisition have hobbled medical-device maker Boston Scientific (BSX). But Wall Street is heartened by some new products and a chief executive who took over in November vowing to return the company to profitability. While the stock is off about 30% from pre-recession levels, it is up 62% this year.
Austerity measures in Europe and a sluggish U.S. economy have dampened demand for surgical procedures and compelled health insurers and hospitals to press for lower prices and bigger discounts for medical devices. Additionally, well-publicized problems with drug-eluting stents have convinced some cardiologists to become more conservative in administering invasive procedures to treat blocked coronary arteries.
The company is now touting five products that just reached the U.S. market or are in late development that executives say could help put Boston Scientific back on a growth path.
The Natick, Mass., company appears on a daily list created using StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude those with a trading volume of less than 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.
Boston Scientific's stock jumped about 20% in mid-May after the company released clinical-trial data on its implantable Watchman device, designed to reduce the risk of strokes in patients with irregular heartbeats.
Atrial fibrillation patients given the device were 40% less likely to have a stroke, form a clot or die than those getting the blood thinner warfarin, according to a study presented May 9 at a meeting of the Hearth Rhythm Society.
More than 2.7 million Americans and 15 million people worldwide suffer from atrial fibrillation, Bloomberg News reported. The condition causes the heart to quiver instead of beating efficiently, allowing blood to pool and potentially form clots that cause strokes. Boston Scientific predicts a $500 million annual market for Watchman if it gets regulatory approval for sale in the United States. The device was approved for sale in Europe in 2005 and some Asian countries in 2009.
Getting Watchman approved in the United States is a key component of CEO Michael Mahoney's growth strategy. Mahoney, who previously worked at health products giant Johnson & Johnson (JNJ), pledged to turn around Boston Scientific through innovation, overseas expansion and making operations more efficient.
Mahoney took over just as Synergy, a drug-eluting stent, was approved for sale in the European Union and shortly after the U.S. Food & Drug Administration OK'd sale of the company's S-ICD, the first heart defibrillator that can be implanted under the skin instead of connecting directly to the heart.
Mahoney has pledged to speed up innovation at the company and expand markets for its products. He has said he sees significant opportunities to increase international sales, particularly in China, Russia, India and Brazil.
Mahoney has been forced to deal with the significant rise in long-term debt incurred when Boston Scientific acquired stent-maker Guidant in 2006 after a bidding war with Johnson & Johnson. Many analysts at the time said Boston Scientific paid too much for Guidant. The subsequent downturn in sales and prices, while largely the product of an ailing economy, has continued to cast the deal in a negative light.
Although best-known for its cardiovascular and cardiac rhythm products, Boston Scientific also makes devices used for electrophysiology, endoscopy, pain management, urology and women's health. It has some 13,000 products sold in about 100 countries.
The company's sales force, active in about 40 countries, has been pared as part of a restructuring that was started in 2011 and renewed this year. The latest payroll cuts were made, in part, in anticipation of a new medical device tax from the U.S. health care overhaul to help pay for coverage of millions of uninsured people. The 2.3% tax on sales of devices used mainly by doctors and hospitals is expected to collect more than $29 billion from the industry over 10 years.
Five of the 18 analysts covering the company rate the stock a "buy" and 13 have a "hold" recommendation.
Boston Scientific has a StockScouter rating of 10, meaning the stock is expected to significantly outperform the market over the next six months with less than average risk.
Here at MSN Money, we think our StockScouter rating system is about as good as it gets when you're trying to decide where to invest. StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.
The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility. Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.
In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.
An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 890% through May 31, 2013.
Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool. Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.
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