2010 was a tough year for medical device stocks. Investors faced up to the reality that a popular myth - that people do not meaningfully change their health care consumption because of the economy - is just not true. Investors also had to digest the impact of a suddenly much more industry-unfriendly FDA, which is imposing new (and in many cases unspecified) standards regarding safety and the trade-off with efficacy.

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All in all, the medical device industry lost about 5% in 2010, just barely missing the bottom 10 list of underperformers. In fact, in broad terms, banks (which includes many subcategories), biotechnology, solar and for-profit education were the only ones separating medical devices from the bottom.

That said, it was not all doom and gloom in the sector. In fact, many medical device companies not only outperformed the industry but did quite well in absolute terms. Here are some of the notable performers of the year. (For a quick refresher, check out A Checklist Of Successful Medical Technology Investment.)

Growth Is Growth

NxStage Medical (Nasdaq:NXTM) does not get all that much attention, but this company has brought to reality what many companies have tried (and failed) to develop for at least two decades - an at-home hemodialysis system that actually works in both a technical and practical sense. NxStage is not profitable yet, but the company is posting double-digit growth (annualizing over $100 million). On top of that, sell-side analyst interest is picking up, and institutional investors are becoming a bigger player in the stock. All of that has fueled a better than 200% jump in the stock over the last year.

DexCom (Nasdaq:DXCM)
Sometimes a better mousetrap is enough to outweigh a bad overall operating environment. DexCom has continued to see good growth and patient acceptance of its continuous glucose monitoring devices. That has meant roughly 60% revenue growth over the past 12 months, and analysts are currently still expecting at least two more years of 50%-plus top-line expansion. With diabetes still regarded as a growth market and widespread expectation of greater M&A activity, investors have seen these shares jump more than 60% in the past year. (For more, see 7 Hot Medical Device Ideas.)

Edwards Lifesciences (NYSE:EW) has likewise seen the benefits of introducing a hot new product. The Sapien transcatheter heart valve has captured hearts and minds, leading analysts to expect double-digit revenue growth, and fueling a 66% improvement in the stock - making Edwards easily the best-performing large-cap medical device stock.

Hospital Spending Lifting Off A Bottom?

A group of medical device companies has benefited from improving conditions in the hospital equipment market. Although hospital budgets are far from normal, these companies are proving that their products are something of a priority for hospitals, and they can capture scarcer spending dollars.

Volcano (Nasdaq:VOLC), a specialist in intravascular ultrasound (IVUS) imaging, has seen the stock jump nearly 70% as the company not only separates itself from Boston Scientific (NYSE:BSX), but more and more clinicians accept the clinical utility of the company's products in improving the quality of coronary care.

Sooner or later, hospitals have to replace things like hospital beds, and Hill-Rom (NYSE:HRC) is there. Trailing revenue growth here is not exceptional (up about 9%), but the stock has risen nearly 80% as the company has racked up several consecutive better-than-expected quarters, and analysts believe the worst is over in the hospital market. Likewise, cancer therapy device specialist Varian (NYSE:VAR) has not seen a big turnaround in performance yet, but analysts largely believe the worst is over and orders will pick up from here.

Other Winners

Other notable outperformers in the medical device space (with market capitalizations of $100 million or more) this year include: BSD Medical (Nasdaq:BSDM), Cooper Companies (NYSE:COO), Cyberonics (Nasdaq:CYBX), Heartware International (Nasdaq:HTWR), ZOLL Medical (Nadsaq:ZOLL) and SonoSite (Nadsaq:SONO). (For more, see There's Money To Be Made In Medical Devices.)

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