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Baxter International Inc. (BAX), Medtronic, Inc. (MDT): Should You Buy These 2 Medical Device Stocks?

Medical device stocks are an excellent place to be if you are still wary of the macro-economy. They are exposed to inelastic demand and don’t have pipelines full of “hit-or-miss” products. Their business models are relatively time-tested, and they often pay a good dividend yield. Below, I review two market leaders and provide my thoughts on recent news about them.

Baxter International Inc. (NYSE:BAX)

Baxter International Inc. (NYSE:BAX) still looks attractive

Baxter International Inc. (NYSE:BAX), the Deerfield healthcare company, ended 2012 with a bang. Sales and profits grew with a 7% surplus compared to the same period a year before. Net revenue stood at $494 million, which was $31 million more than what was reported in the year ago period and above consensus estimates.

Going forward, Baxter is guiding for EPS of around $4.65 in fiscal year 2013 — disappointing in light of the consensus $4.85 estimate. The medical device company also has a lot to prove: the $4 billion Gambro acquisition was the company’s largest ever. It will merge together the second and third biggest dialysis equipment products.

Altogether, the deal is expected to bring in $300 million worth of synergies by 2017 and start being accretive to earnings by next year.

I also believe that risks relating to Biogen Idec Inc (NASDAQ:BIIB)’s hemophilia drug are overblown. Baxter International Inc. (NYSE:BAX)’s market leading product Advate does not face any serious risks — patients are not desirous to switch, and Biogen Idec Inc (NASDAQ:BIIB)’s product benefits only target 25% of Advate’s domestic market. And even if this was a cause for concern, Baxter International Inc. (NYSE:BAX)’s Alzheimer’s catalyst should more than offset the negative speculation.

However, Biogen Idec Inc (NASDAQ:BIIB) investors still have several reasons to be optimistic. The biotech firm has strong liquidity with very little long-term debt, a current ratio of 4. and a quick ratio of 3.8. While the PE multiple is high at nearly 40, growth is in the double-digits and backed by a strong pipeline, which includes a subcutaneous MS treatment and a drug that has demonstrated efficacy with lower intravenous injections compared to substitutes. I am particularly optimistic about the latter product, Eloctate. It been able to control 87% of bleeding with just 1 injection.

Medtronic, Inc. (NYSE:MDT)’s  growth story turns bright

Medtronic, Inc. (NYSE:MDT)’s Evera ICDs — implantable cardioverter defibrillator — got the green light in Europe, which will allow the medical company to market its next-generation of ICDs that have more than 11 years of added battery life. The Evera will also be smaller in size for better fitting and reducing discomfort. It is expected that Evera will now replace the older versions as Medtronic, Inc. (NYSE:MDT)’s flagship ICD product.

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