3 Reasons to Tune In to Health Care in 2014

The year has started with key developments for Intuitive Surgical, St Jude Medical, and Edwards Lifesciences.

Jan 26, 2014 at 4:45PM

This year has kicked off with a bang for a number of health-care stocks!

Just last week, Intuitive Surgical (NASDAQ:ISRG) saw its shares fall by around 7% when it announced that revenue and profits for the fourth quarter of 2013 were disappointing. Revenue fell by just over 5%, while earnings fell by 5% to $166.2 million – down from $174.9 million in 2012.

Furthermore, the company decided not to issue guidance for sales in 2014, which may have been a major reason for the aforementioned share-price fall. Investors, it seems, don't appreciate uncertainty, and a lack of sales forecasts by the company for 2014 highlights just how uncertain management is about the company's near-term prospects.

Of course, 2013 had been a highly challenging year for Intuitive Surgical, with sales of the company's key da Vinci surgical robots falling for the first time, partly because of customer concerns about the safety and cost-effectiveness of the product. In addition, lower-than-expected hospital spending hasn't helped the business to post a successful 2013, either.

The company seems to be uncertain as to how these issues could play out in 2014 (hence the lack of sales guidance), although it has said that it expects to sell fewer da Vinci robots in 2014 than it did in 2013.

While on the subject of guidance, sector peer St. Jude (NYSE:STJ) went in the opposite direction to Intuitive Surgical when it raised its fourth-quarter guidance recently. Indeed, it increased its own forecasts from a profit of $0.95 to $0.97 per share to a new range of $0.97 to $0.99 per share, as it benefited from an improving landscape and new product launches.

This boost comes at an opportune moment for the company, as previous quarters were tough and saw sales hurt by various safety concerns, restructuring costs and other costs, all of which held shares back during 2013. However, the raised guidance could improve sentiment, although judging by the slightly mooted response of the share price since guidance was raised, the market could be waiting for confirmation of a turnaround in future quarters before sentiment picks up considerably.

Meanwhile, the health-care equipment sector also started 2014 with a bang through Edwards Lifesciences (NYSE:EW). Its share price fell heavily after sector peer, Medtronic, had its CoreValve heart device approved by U.S. regulators earlier than expected. This news sent shares in Edwards Lifesciences tumbling by as much as 6%, as it was a direct competitior to its Sapien product, which is now expected to see its market share come under threat.

Edwards Lifesciences is set to give a fourth-quarter update to investors on Feb. 3, and shareholders will no doubt be keen to understand the potential implications of the Medtronic approval. It seems unlikely that the company will issue no guidance, as Intuitive Surgical did, with an upgrade, as in the case of St. Jude, being possible but not probable.

Of course, it should be pointed out that shares in Edwards Lifesciences are still up 4.5% in 2014, despite the news regarding Medtronic's early approval.

So while 2014 has proved to be uncertain for the stocks mentioned here, it has certainly kicked off with a bang and looks set to continue to be volatile over the short to medium term. It's certainly a great reason to tune in to health care for the rest of the year!

Now, tune in to this top stock
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Fool contributor Peter Stephens has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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