Dental Faces Regulatory Challenges: Only 5 Stocks To Pick

 | Sep 12, 2017 10:33PM ET

After Hurricane Irma exited following a lesser-than-estimated impact and North Korea stayed away from any further nuclear missile test, the Wall Street got back its shine.

Furthermore, Apple’s (NASDAQ:AAPL) annual consumer-products event held on Sep 12 is expected to revive investor appetite in the technology space. In fact, the record-high closings of the Dow, S&P 500 and Nasdaq indices on Sep 11 are indicative of the fact that the U.S. equity markets have been performing really well for quite some time now.

Republican Brunt on MedTech Space

While the overall investment world has been gaining prominence, investors in the MedTech industry are unfortunately seeing a reverse trend. This is largely because of the healthcare policy related debacle that had started since the change of President.

After a series of regulatory debacles, the Republicans’ agenda to exterminate the Obamacare failed miserably. Stocks tumbled and things got riskier when the “skinny" repeal bill to partially retract Obamacare fell flat as well.

In this regard, let’s not forget the tax-reform pledges that President Trump had taken to abolish the infamous 2.3% medical device sales tax. Although investor confidence trends up with the hope of ‘enactment of new tax reforms’, we believe the market has not got a whiff of it due to the lack of favorable developments in the regulatory front.

Dental Grapples With Political Issues

Amid such a political conundrum in the MedTech space, the condition of the U.S. dental industry has been getting worse as well. However, this sector has had a stellar performance on the bourse over the last five years, gaining 94.7%, outperforming the S&P 500’s return of just 73%.

Apart from the major political issues that have affected consumer spending in the dental space, there are issues like ease of entrance of dental suppliers, abundance of substitutes, monopoly of suppliers, strict consumer sovereignty and intra-industry rivalry which have been impeding the industry’s growth for quite some time now.

Also, aggressive reimbursement policy adopted by the government and insurers has made it difficult for medical companies to market their products due to increased scrutiny. A notable exception to this trend has been stocks concerning dentistry, since consumers pay a higher percentage of costs in this particular industry. Undoubtedly, dental stocks have been facing the regulatory brunt.

Accordingly, the scenario of the industry is gradually deteriorating and over the last three years, it has just gained 20.6%, much lower than the S&P 500’s return of almost 25%. Furthermore, a discouraging broader industry rank (among Bottom 31% of more than 250 industries) indicates looming concerns for the dental space. We also note that this industry’s projected earnings per share growth rate is 8.7%, lower than the S&P 500’s 9.8%.