Frustrating Boston Scientific Is Not What the Investor Ordered

NEW YORK (TheStreet) – Boston Scientific (BSX) 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.

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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.

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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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