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Frustrating Boston Scientific Is Not What the Investor Ordered

NEW YORK (TheStreet) – Boston Scientific (BSX - Get Report) continues to frustrate its shareholders. The shares peaked in January at $14.08 and have grossly underperformed its peers ever since.

Yet, the stock at around $12, is up 3% on the year to date.

While that 3% may seem respectable relative to the 3% gain of the Dow Jones Industrial Average, the shares have gotten punished their $14.08 head-fake in January. Investors have seen more than 12% of their wealth erode. During that same span, rivals Medtronic (MDT) and Abbott Labs (ABT) have posted gains of close to 9% each.

Making matters worse, shares of Boston Scientific, which trade at a price-to-earnings ratio of 45, are still not cheap. That 20 points above the industry aver P/E of 20, according to Yahoo! Finance.

With the medical device company delivering just 4% year-over-year revenue growth compared to, say, Johnson & Johnson (JNJ) , which is growing at 9%, there's still plenty of risk to the downside. Plus investors can buy Johnson & Johnson at a P/E of 20, lower their risk and enjoy a 2.8% yield compared to no dividend for Boston Scientific.

So for all of the reasons investors should jump into St. Jude Medical (STJ) , Boston Scientific should be avoided. With the stock trading around $12, it only takes one bad quarter or unfavorable product study to send these shares down to single digits. Only then will I recommend them as a buy.

Truth be told, I've always wanted to like this company. Its medical devices are used in a range of interventional medical specialties. There's no evidence that Boston Scientific -- although much improved -- has enough firepower to outgrow Medtronic and St. Jude. Both are making significant investments to secure their positions in the devices market.

Now that there are signs that device growth has stabilized, Boston Scientific still lacks the operational leverage to deliver on the bottom line. Its gross margin of 68% trails both Medtronic and St. Jude. And in terms of operating margin, Boston Scientific's 13% is half of not only Medtronic and St. Jude, but also Johnson & Johnson.

So where's the value?

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