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Health Care Battle Rages On: 2 MedTech Stocks to Buy

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The Trump administration’s bid to replace Obamacare has caused quite a stir in the medical device space. After quite a topsy-turvy political game, industry leaders have finally heaved a sigh of relief after the news of Senate’s latest decision to fully replace the controversialAffordable Care Act by the end of July surfaced. According to CNBC news, this final Obamacare Reform Bill needs a mere 50 votes in the Senate to get through. 

If the replacement takes place, there is a huge possibility that the Medical Device fraternity will be free from the highly unpopular Cadillac tax (40% excise tax on high-cost healthcare plans) and the controversial 2.3% MedTech tax. These taxes, which were commonly addressed as the ‘fund of the Affordable Care Act,’ had taken a toll on the entire medical device industry.

While the larger picture is quite clear for the Medical device fraternity, certain developments are dragging market sentiments down. Despite the solid prospects of the Obamacare pullback, the latest ‘Trumpcare’ module has failed to impress Americans, as is evident from a report by NBC News that shows unfavorable poll results by the Kaiser Family Foundation. The poll suggests that 55% of the Americans have registered votes against Trump’s latest healthcare module.

Also, the Trump Administration has proposed to raise the U.S. Food and Drug Administration (FDA) user fee for medical device in 2018. The U.S. medical device industry mostly consists of small manufacturers that would be substantially affected by higher FDA fees.

Apart from the Trump policy, the Federal Reserve’s latest hike in the benchmark interest rate, which was the third in the last six months, has created havoc. The medical device industry thrives on loans from financial institutes as profits in this sector are very low. Hence, we believe that a rate hike by the Fed may act against medical device players and cloud long-term visibility.

Choosing the Winning Stock

Amid such a volatile backdrop, we believe stocks with strong fundamentals will make lucrative additions to your portfolio. We have taken the help of the Zacks Stock Screener to pick the most favorable stocks. To shortlist the stocks from the vast universe of medical devices, we have taken the ones that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Phibro Animal Health Corporation (PAHC - Free Report) is a global diversified animal health and mineral nutrition company. It develops, manufactures and markets a broad range of products for food animals including poultry, swine, beef and dairy cattle and aquaculture.

Phibro Animal Health has had an impressive run on the bourse over the past three months, representing a stellar return of 22.6%, much higher than the Zacks categorized Medical - Products sub-industry’s increase of roughly 7.2%. In fact, the stock’s price level has outshined the S&P 500’s addition of 2.7% over the same time frame.

The company reported a stellar four-quarter positive average earnings surprise of 4.11%.  Also, we are encouraged by Phibro’s impressive revenue performance, which increased 3.5% on a year-over-year basis in the last reported third quarter of 2017. 

The company’s estimate revision trend for the next year has been favorable. In the past 60 days, one analyst moved north, with no movement in the opposite direction. The magnitude of estimate revision increased around 1.9% to $1.56 per share over the same time frame.

We are encouraged to note that Phibro, as a leading provider of Medicated Feed Additives, has huge growth potential in this niche market. The company is putting consistent efforts to grow globally. Data by Vetnosis (a research and consulting firm specializing in global animal health and veterinary medicine) projected CAGR of approximately 4% (from 2015–2020) for MFA products.

Bio-Rad Laboratories, Inc. (BIO - Free Report) , headquartered in Hercules, CA, together with its subsidiaries, engages in the manufacture and supply of products and systems for the life science research, healthcare, analytical chemistry, and other markets worldwide.

Over the past one year, Bio-Rad Laboratories represented a stellar return of 56.4%, much higher than the Zacks categorized  Medical - Products sub-industry’s increase of roughly 13.2%. The stock’s price level also exceeded the S&P 500’s addition of 17.8% over the same time frame.

The company’s estimate revision trend for the current year has been encouraging. In the past 60 days, two analysts moved up with no movement in the opposite direction. The magnitude of estimate revision increased around 4.4% to $2.87 per share over the same time frame.

The company reported a stellar four-quarter positive average earnings surprise of 13.10%, with an earnings surprise of 51.85% in the last reported first quarter of 2017.

We are encouraged to note that Bio-Rad Laboratories recently received FDA clearance for its BioPlex 2200 Syphilis Total & RPR assay, a novel one-step universal testing method to aid in the diagnosis of syphilis infection.

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