The Healthcare sector has been delivering impressive performance so far this year and the comparative performance of the Health Care Index (XLV) to other major indices says it all. This index has rallied 18.7% year to date in comparison with the S&P 500 Index’s gain of 17.3%.
However, the inside story within this broader space is not all glitter. If we consider MedTech, a significant part of the healthcare space, we can see that its overall performance has been lacking luster in the recent past thanks to certain political and regulatory issues surrounding this space in the United States.
Earlier, the major MedTech players have been hopeful since Trump proposed policies that entailed the abolition of the infamous 2.3% medical device sales tax. This dreaded tax, which was commonly addressed as fund of the Affordable Care Act (ACA), dealt a heavy blow to the medical device industry since its enactment in 2013. This tax is imposed on the selling price instead of net profit, amounting to a stupendous sum, wiping out almost a quarter of the profit for medical technology companies.
Realizing the severe linkage effect of this tax among the MedTech bigwigs and small players, the U.S. House and Senate temporarily suspended it for two years at the beginning of 2015. Thus, the reimposition of the tax on Jan 1, 2018 is currently a concern for the medical device stalwarts.
Investors keen on the MedTech space are closely following the developments with the hope that the new $1.5-trillion tax-reform bill may finally result in the abolition of the infamous MedTech tax.
How Is MedTech Positioned?
Though MedTech is faced with intense volatility, there are bountiful opportunities in the space. Per a Centers for Medicare and Medicaid Services report published by Advisory Board, the U.S. health care spending is estimated to reach approximately $5.5 trillion by 2025, representing 19.9% of Gross Domestic Product (based on assumptions that the ACA will continue through 2025).
However, the Medical Device industry represents a mixed scenario with some lucrative opportunities to invest, with high growth prospects and good value options along with softness in some of its sub-sectors. Within the Zacks Industry, Medical Device is broadly grouped into the Medical sector (one of 16 Zacks sectors) and further sub-divided into important areas like Medical – Products, Medical – Instruments and Medical – Services along with others.
Notably, the Medical – Products sub-industry is a 60-company industry and carries a Zacks Industry Rank of #116, which places it at the top 45% of 250 plus Zacks industries. Our back-testing shows that the top 50% of the Zacks ranked industries outperforms the bottom 50% by a factor of more than two to one. Moreover, the Medical – Products sub-industry has been outperforming the S&P 500 market in terms of price performance by increasing 26.8% compared with the S&P 500’s gain of 20.4% in a year’s time.
Coming to the Medical – Instruments sub-industry, it carries a Zacks Industry Rank of #170, which places it at the bottom 34%. On a positive note, this sub-industry has been outperforming the S&P 500 Market in a year. It has gained 28.9% compared with the S&P 500’s 20.4% rise.
Finally, the Medical – Services sub-industry carries a Zacks Industry Rank of #176, which places it at the bottom 31%. Moreover, the stock has lost 2.2% over the last three months as compared to the broader industry’s 7% gain. However, often it’s very difficult to zero in on the right stock given the wide gamut of choices and a limited financial budget. So, for such investors’ lower priced stocks with can be good bets.
The Winning Combination
In order to save investors from the time-taking process of identifying the best performing MedTech stocks, we have taken the help of the Zacks Stock Screener. Also, we’ve highlighted four stocks that are currently trading under $20 per share.
We also chose stocks that flaunts a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
We have selected stocks that have a favorable Growth Style Score of A or B for positive long-term return. Our research shows that stocks with Style Scores of A or B, when combined with a Zacks Rank #1 or 2, offer the best investment opportunities.
Accordingly, we have zeroed in on the following stocks:
BioLife Solutions, Inc. BLFS: BioLife Solutions is a developer, manufacturer and distributor of patented hypothermic storage and cryopreservation solutions for cells and tissues in the United States. Headquartered in Bothell, WA, this company carries a Zacks Rank #2. Additionally, the stock has a Growth Score of A and a VGM Score of B. Moreover, the stock is currently valued at $5.61. The company belongs to the Medical – Products sub-industry.
The company has surpassed the Zacks Consensus Estimate by an average of 22.6% in the trailing two out of the four quarters.
Also, the company’s estimate revision trend has been positive. In the last 60 days, two of the analysts have revised their estimates upwards with no downward revision.
It also has a favorable Sales/Asset ratio of 1.2 compared with the broader industry’s 0.7.
SeaSpine Holdings Corp. SPNE: SeaSpine Holdings is a medical technology company focusing on the design, development and marketing of surgical solutions for the treating spinal disorders in the United States and globally. Headquartered in Carlsbad, CA, this stock holds a Zacks Rank #2.
Additionally, the stock has a Growth Score of A and a VGM Score of B. Moreover, the stock is currently valued at $9.96. The company belongs to the Medical – Instruments sub-industry.
The company’s estimate revision trend has been positive. In the last 60 days, one of the analyst has revised estimates upward with no downward revision.
It also has a favorable Sales/Asset ratio of 0.9 compared with the broader industry’s 0.6
Apollo Endosurgery, Inc. APEN: Apollo Endosurgery is a medical technology company focusing on the designing, developing and marketing of medical devices for treating obesity. Headquartered in Austin, TX, this stock has a Zacks Rank #2. Additionally, the company exhibits a Growth Score of A. Moreover, the stock is currently valued at $4.70. The company belongs to the Medical – Instruments sub-industry.
The company’s estimate revision trend has been positive. In the last 60 days, one of the analyst has revised estimates upward with no downward revision.
It also has a favorable Sales/Asset ratio of 0.65 compared with the broader industry’s 0.64.
CareDx, Inc CDNA: CareDx focuses on the discovery, development and marketing of diagnostic surveillance solutions for transplant patients in North America, Europe, the Middle East, Africa and Latin America. Headquartered in Brisbane, CA, the company holds a Zacks Rank #2.
Additionally, the stock has a Growth Score of B. Moreover, the stock is currently valued at $7.14. Moreover, the company belongs to the Medical – Services sub-industry.
The company’s estimate revision trend has been positive. In the last 60 days, three of the analyst have revised estimates upward with no downward revision.
It also has a favorable projected annualized sales growth rate of 17.8% compared with the broader industry’s 5.9%.
The Hottest Tech Mega-Trend of All
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