Valuations fall to a decade low! Barclays initiates coverage on 26 U.S. medtech stocks, with Stryker Corporation (SYK.US) among top picks.

Barclays analyst Christopher Pasquale initiated coverage on 26 U.S. medtech companies on Tuesday, adding Stryker Corporation (SYK.US) and Abbott Laboratories (ABT.US) to his list of top large-cap medtech picks. The bank noted that the medtech sector's recent underperformance offers investors an opportunity to buy high-quality companies at attractive valuations. Pasquale's optimistic view comes after the industry benchmark iShares U.S. Medical Devices ETF (IHI.US) fell nearly 19% over the past five years, while the S&P 500 rose nearly 77% over the same period. "After several years of relative underperformance driven by slowing revenue growth, medtech valuations have now fallen to their lowest level in a decade, and the discount relative to the S&P 500 is the widest since the peak of the tech bubble," he wrote in the report. He called the selloff an overreaction, driven in part by multiple company-specific headwinds over the past year that "made the industry's growth rate reverting to the mean look like a more severe deterioration in fundamentals." Pasquale expects a potential stabilization in large-cap medtech revenue next year could serve as a catalyst to boost market sentiment and drive valuation multiple expansion. "While we believe investors should remain cautious until the outlook becomes clearer, we believe the current market environment harbors attractive investment opportunities," he added. Which stocks are involved? Stryker Corporation and Edwards Lifesciences lead the overweight list Barclays named Stryker Corporation and Edwards Lifesciences (EW.US) as its top large-cap picks, with price targets of $375 and $110, respectively. Other large-cap stocks rated "Overweight" include Abbott Laboratories, with a price target of $120; GE HealthCare Technologies (GEHC.US), with a price target of $85; and Intuitive Surgical, Inc. (ISRG.US), with a price target of $485. Among small- and mid-cap stocks, Barclays named Beta Bionics (BBNX.US), DexCom, Inc. (DXCM.US), and LivaNova (LIVN.US) as its top picks, with price targets of $30, $115, and $105, respectively. Other small- and mid-cap medtech stocks rated "Overweight" include Axogen (AXGN.US), with a price target of $55; Bausch + Lomb (BLCO.US), with a price target of $24; Procept BioRobotics (PRCT.US), with a price target of $30; and TransMedics (TMDX.US), with a price target of $120. Which stocks require caution? Medtronic Plc and Boston Scientific Corporation rated "Neutral," Baxter and Becton Dickinson downgraded to "Underweight" Companies rated "Neutral" include: Alcon AG (ALC.US), with a price target of $70; ATRS Technology (AVR.US), with a price target of $10; Boston Scientific Corporation (BSX.US), with a price target of $48; Humacyte (HUMA.US), with a price target of $0.50; Insulet Corporation (PODD.US), with a price target of $150; Medtronic Plc (MDT.US), with a price target of $95; Minimed (MMED.US), with a price target of $22; Senseonics (SENS.US), with a price target of $10; Tandem Diabetes (TNDM.US), with a price target of $18; Cooper Companies (COO.US), with a price target of $60; and Zimmer Biomet (ZBH.US), with a price target of $100. Companies rated "Underweight" include: Baxter International Inc. (BAX.US), with a price target of $20; Becton Dickinson (BDX.US), with a price target of $165; and Inspire Medical (INSP.US), with a price target of $65.