Broad-based diversified medical device companies like Stryker and Medtronic and they have done well overall in the past year. In that period, their stock has risen about 25%, observes Dan Caplinger, Motely Fool Director of investment planning.
The financial performance of public medical device companies, however, has been
mixed bag so far in 2013. Fairing poorly are formerly hot medical device companies specializing in robotic surgical equipment. Intuitive Surgical has lost about 25% of its value over the course of the year. Mako Surgical was down even more but has recovered and is down about 10%. Making matters worse for Mako is the medical device tax; the company wasn’t profitable before the tax went into effect at the beginning of the year, and the company is still required to pay the tax regardless of profitability. In addition, the tax burden for small-to-medium sized companies like Mako is heavier than it is for larger medtech companies like Medtronic.
The robotic surgery market has also faced controversy this year, as criticism related to the devices’ cost efficiency and safety has grown. In particular, Intuitive’s da Vinci has been the focus of much of this criticism.
Caplinger says that there could be upsides and downside for how Obamacare will affect device companies. The bullish argument is that demand for medical procedures will increase as the insured population grows, leading to an uptick in purchasing for many medical devices. Nevertheless, Caplinger does feels that any increase in device makers’ revenue will be subject to a lag, as hospitals have been tightfisted recently. Global conglomerates like Johnson & Johnson could fare better than most, Caplinger says, as their pharmaceutical and OTC businesses could see an uptick from the implementation of Obamacare as well.
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