Morgan Stanley's top medtech picks are Medtronic, Alphatec, Becton Dickinson

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Team of surgeons looking at an image in the monitor at the operating room — Hispanolistic/E+ via Getty Images

Morgan Stanley has picked Medtronic (NYSE:MDT), Alphatec (NASDAQ:ATEC) and Becton Dickinson (NYSE:BDX) as its top picks for medtech stocks, while lowering its rating on Abbott (NYSE:ABT) due to valuation.

In a note dated May 30, Morgan Stanley upped its rating on Medtronic to overweight, citing the company’s potential to top earnings expectations. Also cited was the appointment of former Walmart executive Greg Smith as Medtronic’s chief of operations, which it says has given the medtech a “pathway for more consistent execution” in tackling its supply chain issues.

Morgan Stanley’s second top pick, Alphatec (ATEC), also earned an overweight rating. The bank sees the medtech increasing market share in the spinal market due in part to more surgeons adopting its technology. Morgan Stanley added that Alphatec’s recent acquisition of the REMI Robotic System filled a portfolio gap that would have become more obvious over time.

The bank is also keen on Becton Dickinson (BDX), which it called one of the most defensive stocks its covers with some of the “best pricing power” in the sector. Morgan Stanley currently has an overweight rating on the stock.

Meanwhile, the bank lowered its rating for Abbott to equal weight from overweight, stating that the shares were fairly valued when compared with the rest of the US medtech sector. The firm also initiated coverage of Cooper (COO) and Steris (STE) with equal weight ratings.

In general, Morgan Stanley said it was bullish on medtech’s fundamentals, adding that it believed the sector has “turned the corner” after weathering 18 months of rising costs, supply chain problems and lower volumes due in part to medical staffing shortages.

The firm added it now sees underlying organic growth of 5% to 6% for the sector, with most companies seeing “robust demand to date.”