| NEW YORK, March 13
NEW YORK, March 13 Investors are seeking shelter
in shares of U.S. medical device and supply companies,
encouraged by their solid growth prospects and wary that U.S.
President Donald Trump's criticism of drug prices makes owning
pharmaceutical and biotechnology stocks risky.
Shares of such medtech companies including cardiovascular
devices maker Boston Scientific and medical products
supplier Baxter have posted strong gains to start 2017.
The S&P 500 healthcare equipment index has
climbed 14 percent in 2017, topping the 10 percent rise for the
broad S&P 500 healthcare sector and 6 percent gain for
the overall S&P 500.
The industry represents a way to bet on increasing medical
procedures as the population ages, while potentially avoiding
"They are putting up good numbers from a growth perspective
and they seem like they're in a little cocoon from the political
drug pricing debate," said Walter Todd, chief investment officer
of Greenwood Capital in Greenwood, South Carolina, whose
holdings include diversified medical device maker Medtronic
and diagnostics company Hologic.
For much of last year, medtech's relative strength was even
more apparent. Healthcare and biotech were out of favor as
investors were concerned that Hillary Clinton would enact drug
pricing reform if she won the presidential election.
So far this year, healthcare overall and biotech in
particular have rebounded somewhat. But Trump's criticisms about
high drug prices are keeping investors on edge, and medtech is
In January, the president said drug companies were "getting
away with murder" in what they charge.
Trump tweeted last week that he was working on a "new
system" to reduce prices. While Nasdaq-listed biotech shares
dropped 1.5 percent that day, the medical devices index
slipped only 0.2 percent and actually fell less than the broader
"We do think it still represents a safer avenue to
participate in healthcare," said George Strietmann, portfolio
manager at Bahl & Gaynor in Cincinnati, whose growth fund is
more heavily invested in the medtech sector than in
Investors may have to pay up for that safety. The S&P 500
healthcare equipment index is trading at nearly 19.5 times
earnings estimates for the next 12 months, above its five-year
average of 16.6 times, according to Thomson Reuters data.
By contrast, an S&P 500 index of pharmaceutical companies
is trading at 15.8 times forward earnings estimates
and an index of S&P 500 biotech companies is
trading at 13.9 times.
While increasing drug prices take the spotlight, pricing in
the major medical device markets has generally been declining in
recent years, RBC Capital Markets analyst Glenn Novarro said.
Although those pricing declines and the strong dollar stand
to pressure the industry's revenue, key markets such as
pacemakers, spinal implants and knee and hip replacements should
post volume growth of around 5 percent this year, similar to
2016, Novarro said.
Investors will avoid "medtech if there’s any sense of
incremental pricing pressure or volume slowdowns," Novarro said.
(Reporting by Lewis Krauskopf; Editing by Cynthia Osterman)