Boston Scientific (BSX) and other medical-device producers have been in the news a lot recently as the roll out of the Affordable Care Act (ACA) brings with it a new 2.3% excise tax on medical devices. For a while, it looked as though this tax might be removed from the law as part of the compromise to reopen the Federal government, but unfortunately for BSX, it was not. And while BSX has been steadily climbing with the rest of the market, the closer we get to 2014, the more the cracks are starting to show.
BSX reported earnings on Oct. 24, and although it beat Wall Street’s top-line revenue and bottom-line earnings estimates, the stock began to sell off after the announcement. The company said its heart stent segment experienced weak sales, and then went on to issue a weak fourth-quarter sales forecast. It appears recent medical studies claiming stents and cardiac rhythm technologies — like pace makers (another key product for BSX) — have been overused is hurting demand for BSX products.
In response to this news, Wall Street has been selling the stock. BSX is on the verge of completing a head-and-shoulders reversal pattern. If the stock can break down through support (the neckline) at $11.50, we anticipate it will continue to fall to $10.50.
Recommendation: Buy to open the BSX December 11 Puts (BSX131221P00011000) for a maximum price of $0.20.
InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.