Cochlear (ASX: COH) has been largely out of favour with analysts and investors in recent years, due to lower-than-hoped-for periodic results as well as the increasing presence of competitors in the industry.
The company manufactures and distributes cochlear implantable devices for the hearing impaired with the aim of improving its customers' standard of living. For over 30 years, the company has developed the highest quality products, making it a favourite amongst customers.
However, according to Bloomberg, the company currently has just three 'buy' calls, compared to three 'holds' and nine 'sells'. Although it is recognised that Cochlear is a quality company, concerns have arisen regarding the entrance of other competitors such as Sonova, which recently won a Chinese contract for 1,500 hearing aid units. In fact, some analysts are anticipating that Cochlear's unit sales could decrease by between 6% and 11% for 2013-14.
So because Cochlear is out of favour with analysts and investors, it's a stock to avoid, right?
Wrong. In fact, it could otherwise be argued that right now is the perfect time to buy.
What's so attractive about Cochlear?
Since January, the company's share price has plummeted 28.7% from $82.87 to just $59.06. The current price is reflective of what many believe to be a poor outlook, given increased competitive pressures and short-term threats to the level of sales.
That's hardly a fair valuation on a company that increased the number of customers to receive its implants last year by 16% to 26,674. In addition to this, Cochlear's second half sales were stalled due to the pending release of its Nucleus 6 product – which the company believes customers waited for instead of purchasing older models.
Meanwhile, an increased level of competition is always daunting for any investment, particularly when the new competition is able to produce similar products at a cheaper price. However, in such a profitable industry, it was always to be expected that new competitors would enter the market. It is the quality of Cochlear's products that gives me faith regarding its long-term prospects – after all, when it comes to health, quality is king.
Joel Gray, portfolio manager for Hyperion Asset Management (which, according to The Australian Financial Review, owns 6% of Cochlear), believes that "there are a lot of potential recipients that aren't currently receiving implants."
Furthermore, the company's level of spending on research and development should hold it in good stead against competitors, allowing it to provide a superior product and therefore maintain a strong share of the market for a long time to come.
Foolish takeaway
Whilst Cochlear remains a very attractive prospect, there are other strong healthcare companies to consider. For instance, the future is bright for ResMed (ASX: RMD), which develops products for the treatment of respiratory disorders, as well as Acrux (ASX: ACR), which develops a range of patient-preferred pharmaceutical products.
Although there are gains to be made in this industry, there are plenty of other attractive ideas. For instance, are you interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."
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Motley Fool contributor Ryan Newman owns shares in Cochlear.
