The medical technology sector must face up to a host of pressures if it wants to grow this year, according 1 analyst shop, but the leading med-tech index, the iShares DJ U.S. Medical Devices Index Fund, shows that med-tech’s momentum slowed during the first quarter.
"Three months into the year, we sense that major markets are stabilizing – especially CRM. But companies continue facing a host of pressures related to pricing, reimbursement, utilization, regulatory scrutiny, and the still slow and gradual U.S. economic recovery. European economic and budgetary pressures also add to the uncertainty," wrote a pair of Leerink Swann analysts.
"Our [Q1] expectations are modest: We hope our stabilization thesis holds water and that the full-year outlooks remain basically intact. Also key to that thesis will be hearing positive commentary on pipelines, emerging market growth, and in many cases ongoing restructuring, costcutting and share buybacks activities – all of which can help industry EPS grow faster than the modest ~2% average reported top-line growth we expect."
But the med-tech index shows that the few stalwarts like Intuitive Surgical (NSDQ:ISRG) (=19% this year, according to Barron’s) and Covidien (NYSE:COV) (+20% in 2012) are buoying the rest of the stocks on the list, according to Barron’s and a Brown Brothers Harriman researcher named Ari Wald.
"Relative to the S&P 500, the iShares Medical Devices ETF (IHI) was moved to a Neutral Minus [-1] rating this month after maintaining Neutral Plus [+1] since early December," Wald wrote, according to the business journal. "IHI had outperformed in a rising market advance over the last four months, but recent failures at its relative strength (RS) 200-day moving average combined with slowing momentum could be viewed as reasons to lock in relative gains. IHI is also back to the mid-way point of its multi-year RS trading range, suggesting that the risk/reward balance is more evenly distributed."
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