Originally Published MX January/February 2004
EDITOR'S PAGE
Herding the Bulls
The conventional wisdom of market analysts—often repeated in these pages—is that medical technology stocks are a good investment bet during economic downturns. Driven by macroeconomic trends that are generally insulated from the fluctuations of the consumer marketplace, medical technology firms typically outperform companies in other industries when the economy is sour.
That's great to know when the world's economies are experiencing such downturns, as they have been for the past several years. At such times, it's easy for executives to make a case for investment in medtech companies whose revenues and earnings are continuing to grow while other companies are faltering.
But such an approach is not a lot of help during times of economic recovery. When the world's economies begin to grow, say analysts, investors who previously took defensive positions in the medtech industry can be readily lured to other sectors by the promise of higher and quicker returns.
At the end of 2003, many indicators suggested that the U.S. economy was, at long last, beginning to experience such a rebound. While the consumer price index decreased 0.1% in October and the unemployment rate held steady at 5.9% in November, productivity in the manufacturing sector rose a whopping 9% during the third quarter of the year—the largest quarterly increase since 1984. Also in the third quarter, the nation's gross domestic product increased at a rate of 8.2% and corporate profits increased by $105 billion.
A rising economy will undoubtedly benefit medical technology companies in a variety of ways. But executives who are counting on the recovery to support further growth of their companies may find themselves disappointed unless they act early to prevent investors from defecting to other industries.
This year, keeping the bulls headed in the right direction could turn out to be among the greatest challenges for medtech executives.
Copyright ©2004 MX
