A Goldman Sachs analyst said Tuesday that he thinks the stock of medical supply companies will perform better than shares of medical device makers in the coming months because their products are relatively inexpensive.
Analyst David Roman said he now rates the medical supply sector "Attractive" and holds a lower "Neutral" rating on device companies. He said medical device makers may struggle with slower sales growth, efforts by insurers to reduce the use of some procedures, and potential cuts to Medicare reimbursement rates. Roman said he does not think the stocks will trade much higher, but medical supply stocks should trade higher.
"Stable unit growth, relatively low exposure to price cuts of high ticket devices, and favorable use of capital makes us positively disposed to the medical supplies names," he said. He added that supply stocks are better protected from a weakening economy.
The analyst said his top picks in the medical supply sector are Baxter International Inc. and Covidien PLC, both rated "Buy." He downgraded shares of Becton Dickinson & Co. to "Neutral" from "Buy" and lowered his rating on C. R. Bard Inc. to "Sell" from "Neutral."
Covidien stock rose $1.20, or 2.7 percent, to $45.27 in afternoon trading, while Baxter shares picked up 26 cents to $50.57.
In device makers stocks, Roman lowered shares of Medtronic Inc. to "Neutral" from "Buy" and Zimmer Holdings Inc. to "Sell" from "Neutral." Despite his lower rating on medical implant makers, Roman upgraded shares of Edwards Lifesciences to "Buy" and put the stock on the Conviction Buy list, a portfolio of recommended stocks. He said shares of Edwards have been weak since September, and while the patient population for its Sapien heart valve is smaller than he originally expected, that news is already reflected in the stock price.
Shares of Medtronic lost 22 cents to $30.85 and Zimmer stock declined 18 cents to $53.72. Shares of Edwards Lifesciences gained 6 cents to $63.99.