JBL: No Tricks, Two Stock Treats

Boston Scientific still has around 50% of the stent market share in the U.S. and did its own study, which showed no significant difference between Taxus and Cypher.

Nevertheless, Boston Scientific shares have plunged from a high in the mid-$40s to $24.59 as of Friday's close.

Investors now have a great opportunity in Boston Scientific. With a forward P/E of 13 and a P/E-to-growth ratio of just over 1, the stock is cheap. J&J trades at a forward P/E of 16.5 based on 2006 estimates of $3.77 per share; Boston Scientific would be valued at more than $31 if given the same multiple, based on its 2006 consensus estimates of $1.90 per share.

As a potential catalyst for that multiple expansion, the company is coming out with a second-generation stent, the Taxus Liberte, that has already added to its market share in Europe. Boston Scientific has a third-generation stent that will come into the market in 2009.

This is not a one-trick pony. Boston Scientific has a tremendous amount of cash flow from stent sales that will fund its already large research and development effort. It has several devices coming out, including a leadless defibrillator, vascular closure devices, and disposable endoscopes.

Boston Scientific will enter the Japanese market in 2007, and it still has around a 50% market share in the U.S. With a renewed marketing campaign, an aging population that fuels stent industry growth, and new products emerging, Boston Scientific is a buy right here.

Potential pitfalls are current patent litigation and an overhaul of the Medicare system as most patients are mature adults. I do not believe either of these will be a problem.

The trick is over, it's time for a treat.

Charlie Brown may never get to kick that football, but Boston Scientific investors will soon be scoring points again.

Happy Halloween.

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