Only 4 Dental Stocks To Buy Amid MedTech Regulatory Woes

A lot has been said about the President’s latest and most-controversial $1.5 trillion tax move and its impact on the economy once it’s passed. So far, the reaction of the hoi polloi has been mixed with people in favor of the Republicans treating the latest move as a big stimulant for economic growth that could offset any financial deficit. According to them, this new system will replace the existing “complicated, antiquated, and unfair” tax code that has not been updated for more than 30 years.

Opponents, however, slammed the new plan as a 'job killer'. Per a report by The New York Times, “critics say a deficit-financed tax cut is at odds with longstanding Republican calls for fiscal discipline, including that tax cuts not add to the ballooning federal deficit. The federal debt topped $20 trillion earlier this month and is projected to grow by another $10 trillion over the next decade.”

No Talk on MedTech Tax Repeal

There is still lack of clarity in the MedTech space, which is unable to gauge the impending impact of the latest tax bill. In this regard, we note that the community was extremely hopeful about Trump’s regulatory agenda as it promised the abolition of the infamous 2.3% medical device tax.

The dreaded tax, commonly addressed as 'fund of the ACA', dealt a heavy blow to the medical device industry since its enactment in 2013. This tax, imposed on the selling price instead of net profit and amounting to a stupendous sum, wiped out almost a quarter of the profit of medical technology companies. Realizing this, the U.S. House and Senate temporarily suspended it for two years at the beginning of 2015.

Going by the available data, it is quite evident that this partial two-year repeal of the medical device tax has benefited the sector’s overall development. Per data provided by the medical device trade group (in a Ken Blackwell article published by The Daily Caller), within this period, there was roughly an 83% rise in research and development (R&D) investments by MedTech players.

The Republicans’ current stance of being tightlipped about this tax increases the probability of its return in 2018. Undoubtedly, its comeback will be an additional burden for the MedTech fraternity, largely discouraging R&D activities.

Dental Bears the Brunt Too

The condition of the U.S. dental industry (a significant part of the Medical device space) is equally bad. Notably, this sector posted a stellar performance on the bourse over the last five years, gaining 103.6% and outperforming the S&P 500’s gain of just 87%.

Unfortunately, given the political challenges, the performance of the industry has deteriorated and over the last two years, it has gained just 11.8%, much lower than the S&P 500’s gain of almost 25%. Furthermore, a discouraging broader industry rank (among Bottom 31% of more than 250 industries) indicates persisting concerns for the dental space. We also note that this industry’s projected earnings per share growth rate is 8.7%, lower than the S&P 500’s 9.8%.

4 Dental Stocks to Bet On

Owing to the adversities, market watchers have adopted a bearish stance toward the dental space. At present, only four dental stocks are expected to beat the ongoing MedTech blues. Apart from a strong Zacks Rank #1 (Strong Buy) or 2 (Buy), these stocks are witnessing favorable estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here

Align Technology, Inc. (NASDAQ:ALGN) : This Zacks Rank #1 company manufactures and markets a system of clear aligner therapy, intra-oral scanners and CAD/CAM (computer-aided design and computer-aided manufacturing) digital services used in dentistry, orthodontics, and dental records storage. Align’s recent slew of product development, continued growth observed across all channels and the company’s consistent focus on international markets to drive growth boost our confidence in the stock.

Meanwhile, the company’s recent earnings estimate revisions have been promising. For the current year, eight estimates have gone up in the past 60 days with no movement in the opposite direction. This had positive impact on the Zacks Consensus Estimate, which increased by 3 cents in the past two months.

The Cooper Companies Inc. (NYSE:COO) : This Zacks Rank #2 company is a specialty medical device manufacturer operating on a global basis. Cooper Companies is poised to gain from an expanding product portfolio and increasing penetration in international markets. Accretive acquisitions are also key catalysts for the long haul.

The company recently signed an asset-purchase agreement to acquire the flagship contraception platform of Israel-based Teva Pharmaceutical Industries (NYSE:TEVA) — PARAGARD Intrauterine Device. This $1.1-billion cash transaction will bolster the company’s CooperSurgical business segment in the contraceptive device market. Furthermore, the outlook for the contact lens industry is favorable, which is likely to boost the stock over the long haul.

Meanwhile, the company’s recent earnings estimate revisions have been favorable. For the current year, three estimates have moved higher in the past 60 days, compared to no movement in the opposite direction. Current year estimates have increased 0.9% in the past three months.

Merit Medical Systems, Inc. (NASDAQ:MMSI) : This Zacks Rank #2 stock produces single-use medical products of high quality and superior. The company expects to gain from its decision to purchase certain assets from Becton, Dickinson and Company that includes soft tissue core needle biopsy products. It will also acquire the Aspira Pleural Effusion Drainage Kits and the Aspira Peritoneal Drainage System from C. R. Bard. All these are likely to expand its footprint.

Meanwhile, the company’s recent earnings estimate revision trend has been encouraging. Four estimates for the current year have moved higher in the past 60 days, compared to no movement in the opposite direction. This had a positive impact on the consensus estimate, which increased by a cent in the past two months.

Straumann Holding AG SAUHF: This Zacks Rank #1 stock is a global leader in implant and restorative dentistry and oral tissue regeneration. In collaboration with leading clinics, research institutes and universities, Straumann researches, develops and manufactures dental implants, instruments, prosthetics and tissue regeneration products for use in tooth replacement and restoration solutions or to prevent tooth loss.

The stock has a long-term expected earnings growth rate of 15%.

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