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Tickers in this Article: HOLX, IRIS, VOLC, GE, GPRO, BSX, STJ, CPTS, IHI
As earnings season winds down, a relatively rare trifecta occurred May 3 as three quality growth med-tech stocks reported their earnings. Hologic (Nasdaq: HOLX), IRIS International (Nasdaq: IRIS) and Volcano (Nasdaq: VOLC) all reported earnings with varying degrees of performance.

Hologic Treads Water
Hologic is a company dedicated to women's health and has posted excellent growth over the years. Right now, though, the company is in a bit of a valley as management has to wait to introduce new technologies. For the past quarter, revenue was up 4%, operating income was up 2% and EPS was flat - all more or less in line with analyst expectations.

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Right now, Hologic is still seeing a tough market for its digital mammography products as hospitals struggle to fund their capital equipment budgets. Nevertheless, the company does have a strong position at roughly one-third of the market, split with General Electric (NYSE: GE) and Siemens. The market is about two-thirds penetrated, and the introduction of new 3D tomosynthesis should allow for more sensitive (and specific) results in addition to a higher price.

Beyond mammography, the company continues to roll out its new Adiana sterilization product against the entrenched rival product from Conceptus (Nasdaq: CPTS). On the diagnostics side, Hologic could have a real winner with its Cervista automated HPV screening product. But the company is delaying its regulatory submission, and this risks giving would-be competitors like Roche and Gen-Probe (Nasdaq: GPRO) a foot in the door.

IRIS Waits To Bloom
IRIS is a stock with considerable potential to both perform and to frustrate. Simply put, the technology and products are in place, but the company does not always deliver the results that investors want to see. This was another "yes, but" quarter. Yes, revenue was strong, up 20% and ahead of expectations; but the company missed the bottom line in part due to lower margins and higher R&D expenses. (For more, see A Checklist For Successful Medical Technology Investment.)

That said, there are three solid reasons to stay tuned to this story. First, the company has filed a 510(k) application with the FDA for its new proprietary molecular diagnostic test for prostate cancer recurrence. The ProsVue test is exceptionally sensitive, and that sensitivity should allow for earlier detection of cancer recurrence. All in all, this could provide tens of millions of dollars in incremental revenue if approved and launched - a significant sum for a company annualizing at about $100 million in revenue.

The company is also closing in on filing another 510(k), this one for the VELOCITY system (a combination urine chemistry and automated microscopy analyzer). If approved, this device should give the company a further competitive advantage (the only fully integrated device on the market) as well as better margins. Longer term, the company continues to make progress on developing its 3GEMS technology for next-generation products in urinalysis and the multi-billion-dollar hematology market.

Volcano Rumbling
Last and not least, Volcano is the strongest grower of the bunch, and arguably the one with the strongest near-term prospects. The company posted 36% overall revenue growth in the quarter, with intravascular ultrasound (IVUS) sales up 26%, IVUS catheter sales up 33% and only a modest pullback in system placements after an exceptional close to 2009. The company's functional measurement (FM) business also continues to post stellar growth with 67% growth in this quarter.

Volcano does not face nearly the same competition level as Hologic. Boston Scientific (NYSE: BSX) runs its IVUS business almost as an afterthought, and Volcano seems to be gaining share in FM against St. Jude Medical (NYSE: STJ) as well. Better still, both of the company's primary markets are severely under-penetrated, with IVUS penetration at around 20% at best. Longer term, Volcano has a lot of interesting technologies in the clinic, including a new platform based around optical coherence tomography (OCT) technology that could give the company product options in new markets like ophthalmology, dentistry and oncology.

Bottom Line
Healthcare is often seen as a defensive option in the market, but a quick look at the chart for the iShares Dow Jones US Medical Devices ETF (NYSE: IHI) shows that this sector has outperformed the broader market going into and coming out of the recession.

Speaking more specifically to these three stocks, I think growth med-tech is a great place for investors to maintain a permanent position, and these are three names worth a further look. Hologic is not growing now, but new product introductions over the next two years could reignite performance. Volcano is not cheap on an absolute basis, but it boasts fantastic growth potential and is not expensive by historical med-tech standards. Finally, IRIS requires a bit more patience, but the valuation is not demanding, and solid execution could really boost the top and bottom lines in the next few years.

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