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Medical-Device Stocks Rise

Two indexes tracking medical-device companies posted small gains last week while outperforming a declining Standard & Poor's 500 index, reports Dow Jones. The modest upturn seems to be in response to several variables according to J.P. Morgan analyst Michael Weinstein.

"Investors have begun to appreciate the challenges facing Congress and the likelihood that any bill that comes out of Washington is watered down in compromises and potentially lacking in teeth." Weinstein said he expects a second-half rally in health-care stocks in general and medical-technology stocks in particular. Thomas Gunderson, of Piper Jaffray says that a full recovery won't be seen until certain factors are reversed. "There are several factors that contribute to the lower ratio, and therefore the lower prices," he says. Such factors start at point with the downturn in the economy, which affects potential patient copays that are pressured by tightened personal budget. "Copays have risen in the last few years," Gunderson says. He also points to unemployment and under employment as cause for the reduction in elective surgeries. The lower traffic, delayed payments, difficult loan processes, and decreased hospital endowments are hurting hospital's operating margins, which Gunderson describes as already "razor thin." Major product lines have matured, resulting in slow revenue growth of some large cap medtech companies. And investors are worried about the implications regarding  healthcare reform. All these difficulties must be reversed, says Gunderson, to fully bring back medtech stock prices. "Economy and hospital financials must normalize, we have to see some successes in new product launches among the mid-and small cap medtech companies, and a resolution on the expected reform should remove the investorsâEUR(TM) uncertainty risk."

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