My Top Stock For The Coming Healthcare Boom [SurModics, Inc.]

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May 14, 2014 11:44am NYSE:XLV

healthcare1George Leong: As the country moves forward in providing medical coverage for all Americans, the healthcare sector will be one of the top growth areas for investment opportunity going forward.

As I recently discussed in these pages, there are ways investors can benefit from Obamacare, whether you believe in the new healthcare strategy or not. The reality is that there will be tens of millions of Americans added to the list of those needing healthcare solutions, and that will definitely provide an investment opportunity and a catalyst for growth in the sector.

What I believe is that there will be a tremendous investment opportunity for investors over the next few decades, as the Baby Boomers, Generation Jonesers, and early Generation Xers move into retirement and the demand for healthcare solutions accelerates across the country.

We will see an investment opportunity among the providers of health plans, along with the pharmaceutical and medical device makers that will market to a much larger user base.

Besides the rising demand for drugs as America increases its health coverage and its citizens age, I also expect a significant increase in the demand for medical devices. Today, you can already get replacements for hips and knees, along with other extremities. I expect the range of products and demand to continue to rise as American seniors grow older and research and technology advance.

There are numerous medical device companies that could benefit from the shifting healthcare space. An interesting contrarian investment opportunity on medical devices may be SurModics, Inc. (NASDAQ/SRDX), which has a share price of $21.25 and a market cap of $287 million.

SurModics develops a technology that helps coat the surface of medical devices, making them more effective. The coating technology is also used for the drug delivery process.

The company is struggling at this time, after having fallen short in its first-quarter earnings. Prior to this, SurModics beat consensus earnings-per-share (EPS) estimates in two straight quarters. Down to just above its 52-week low, I see a possible contrarian investment opportunity for speculators at the current price.

For SurModics, the company needs to prove to investors that it’s ready to deliver consistent results.

Fundamentally, SurModics reported declining fiscal revenues, falling in three straight years to fiscal 2012, prior to a rebound in fiscal 2013. The growth is expected to continue by 5.4% to $58.59 million in fiscal 2014, followed by 5.6% to $61.87 million in fiscal 2015, based on data from Thomson Financial.

The chart of SurModics shows the current breakdown and recent bounce off longer-term support at around $20.00. The stock could bounce back towards $26.00–$28.00, based on my technical analysis.

SurModics Chart

Chart courtesy of

The bottom line is that SurModics is a good example of a contrarian investment opportunity that could provide some decent upside potential, especially as Obamacare comes on-stream.

This article is brought to you courtesy of George Leong from Profit Confidential.

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