Medtronic, Inc. (MDT), Boston Scientific Corporation (BSX): Is This the Market’s Last Remaining Bargain?

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It is hard to remember a time when the market was as overheated as it is today; even during the tech bubble, there were non-tech stocks that were cheap. Today, few stocks in any sector are even worth a closer look based on earnings multiples.

Medtronic, Inc. (NYSE:MDT)However, one company — Medtronic, Inc. (NYSE:MDT) — may be the last remaining bargain in this bull market. Medtronic, Inc. (NYSE:MDT) sells at a steep discount to its peers due to a high degree of uncertainty regarding its future cash flows. But a closer look at the company’s diversified product portfolio and future opportunities makes the stock look attractive at current levels.

Strong business performance

As the market leader in many of the product markets it serves, Medtronic, Inc. (NYSE:MDT) enjoys the trust of doctors and scale of operations that few other companies can claim.

Although many of its products are not meaningfully differentiated from those of, say, Boston Scientific Corporation (NYSE:BSX), Medtronic, Inc. (NYSE:MDT) profits from high customer switching costs due to doctors’ reluctance to switch to a different brand if the one they are using suits their needs. Along with scale advantages that allow the company to match competitors’ prices, high switching costs allow Medtronic, Inc. (NYSE:MDT) to defend its leading market share.

Both Medtronic, Inc. (NYSE:MDT) and Boston Scientific Corporation (NYSE:BSX) suffered painful product recalls during the last few years, but Medtronic’s diverse product base allowed it to absorb the shock better than its competitor; Boston Scientific Corporation (NYSE:BSX) lost significant ground in the defibrillator market and is unlikely to recapture its market share.

Meanwhile, Boston Scientific Corporation (NYSE:BSX)’s bare metal stents have come under greater scrutiny after multiple independent studies have shown them to be no more effective than an aspirin regiment. As a result of these mishaps, the company lost more than $3 per share over the last four quarters.

Another of Medtronic’s competitors, St. Jude Medical, Inc. (NYSE:STJ), has done relatively well compared to Boston Scientific Corporation (NYSE:BSX). Its Angio-Seal device is the undisputed leader in its market, and it has not suffered from the extensive product recalls that plagued Boston Scientific Corporation (NYSE:BSX) and Medtronic.

In addition, St. Jude Medical, Inc. (NYSE:STJ) is investing heavily in atrial fibrillation and related devices that will directly compete with Medtronic’s offering. However, customer stickiness will enable Medtronic to remain the leader in the market, while St. Jude struggles to gain ground.

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