As 2019 draws to a close, we witnessed that the MedTech industry benefitted from growing healthcare awareness and purchasing power in the emerging markets, exceptional progress in innovation and technological advancement. However, the U.S.-China trade war, which resulted in both the countries levying tariffs worth thousands of billions of dollars on each other, dragged on for almost 18 months and was a dampener. Despite a series of recent exemptions by the U.S. Trade Representative (USTR), this has significantly impacted the performance of the industry players.
Mirroring the scenario, the Zacks Medical Products industry, which is known for its high-paying jobs, and research and development opportunities, grew 16.8% on a year-to-date basis but fell short of the broader market rally of 27.2%.
Nonetheless, investors are looking forward to a brighter 2020 and have pinned hopes on the recent “phase one” trade deal between the United States and China, which will hopefully bring an end to the trade-war fiasco.
Notably, on Dec 13, 2019, both the sides announced a preliminary deal upon which “Global stocks hit a record high and bond yields climbed on optimism over trade” (a Bloomberg Report).
We analyze the major trends that are likely to govern the industry in 2020, and in turn take a look at stocks, which stand to gain from it.
Three Key Trends to Watch Out for in 2020
Growing R&D Expenditure: In 2019, top MedTech companies increased R&D spending across the board. This is likely to sustain in 2020 as well. Higher R&D expenditure is putting more MedTech products into a faster approval cycles, thereby leading to more new products being marketed. According to a report by MedTech Dive, total MedTech R&D spending is projected to grow by 4.5% at $39 billion by 2024. Per a report by EvaluateMedTech, published by Medical Device and Diagnostic Industry, Medtronic MDT is likely to be the biggest spender (spending $2.5 billion by 2020). This constitutes 8.5% of the total expenditure the entire MedTech industry is estimated to spend in 2020.
Digital Transformation: Interest in digital health is palpable from significant growth in investments in the space over the last five years. Geriatric population with prevalence of chronic diseases and current and upcoming changes to regulations and reimbursements will drive adoption of digital health services and technologies in 2020 and beyond.
Technologies like cloud computing, AI and Internet of Medical Things (IoMT) can simplify the healthcare delivery process and align it with changing customer needs. However, as digital health gains momentum, companies need to continue investing in security tools and services to detect risks (cybersecurity being one of the primary concerns) and keep them in check.
In-vitro Diagnostics (IVD) Gaining Prominence: IVD has been a game changer when it comes to early detection of a patient’s health condition and the risk associated with the same, thereby resulting in creation of new opportunities for early intervention and prevention. In fact, according to EvaluateMedtech’s consensus forecast, IVD is projected to lead through 2024 comprising 13.4% of the total medical device market with an annual growth of 6.1%.
According to Medical Device and Diagnostic Industry, IVD could become the leading niche in the industry by 2020, responsible for 14.1%, or $67.3 billion in sales.
Best MedTech Stocks to Buy in 2020
Based on the aforementioned trends, we remain confident about the MedTech stocks to deliver strong performance in 2020. Here we will take a look into six stocks whose expected earnings and sales growth rates exceed that of the broader market. These six stocks carry a Zacks Rank of 1 (Strong Buy) and 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CONMED Corporation CNMD: This Utica, NY-based company, which has a Zacks Rank #2, is a major medical products manufacturer specializing in surgical instruments and devices for minimally invasive procedures and monitoring. For 2020, CONMED’s expected revenue growth rate of 6.5% exceeds that of the S&P 500 index’s 3.2%, while the projected earnings growth rate of 15.9% is higher than the market’s 8.5%. Its shares have gained 71.4% year to date, outperforming the S&P 500’s rally of 27.2%.
West Pharmaceutical Services, Inc. WST: This Exton, PA-based company manufactures and sells containment and delivery systems for injectable drugs and healthcare products in the United States, Germany, France, Other European countries, South Korea, and internationally. For 2020, this Zacks Rank #2 company’s projected revenue growth rate of 7.3% exceeds that of the S&P 500 index’s 3.2%, while the anticipated earnings growth rate of 10% is higher than the market’s 8.5%. Its shares have gained 54.2% year to date, outperforming the S&P 500’s 27.2% gain.
NuVasive, Inc. NUVA: NuVasive, headquartered in San Diego, CA, is one of the leading global medical device companies in the global spine market, focused on developing minimally-disruptive surgical products and procedurally-integrated solutions for the spine. For 2020, the company’s projected revenue growth rate of 6.1% exceeds that of the S&P 500 index’s 3.2%, while the anticipated earnings growth rate of 9.7% is higher than the market’s 8.5%. Its shares have gained 56.1% year to date, outperforming the S&P 500’s rally of 27.1%. The company carries a Zacks Rank of 2.
ResMed, Inc. RMD: ResMed, headquartered in San Diego, CA, holds a dominant position as a designer, manufacturer, and distributor in the worldwide market for generators, masks, and related accessories for the treatment of sleep-disordered breathing (SDB) and other respiratory disorders. For 2020, the company’s expected revenue growth rate of 8.6% exceeds that of the S&P 500 index’s 3.2%, while the projected earnings growth rate of 9.8% is higher than the market’s 8.5%. Its shares have gained 36.7% year to date, outperforming the S&P 500’s growth 27.2%. The company sports a Zacks Rank of 1.
Tandem Diabetes Care, Inc. TNDM: The Zacks Rank #2, San Diego, CA-based company designs, develops and markets products for people with insulin-dependent diabetes. For 2020, the company’s estimated revenue growth rate of 21.7% exceeds that of the S&P 500 index’s 3.2%, while the projected earnings growth rate of 104.2% is significantly higher than the market’s 8.5%. Its shares have gained 59.9% year to date, outperforming the S&P 500’s growth of 27.2%.
DexCom, Inc. DXCM: San Diego, CA-based DexCom, Inc. is a medical device company focused on the design, development and commercialization of continuous glucose monitoring systems (CGM). For 2020, the company’s anticipated revenue growth rate of 20.5% exceeds that of the S&P 500 index’s 3.2%, while the estimated earnings growth rate of 21.6% is higher than the market’s 8.5%. Its shares have gained 80.6% year to date, outperforming the S&P 500’s 27.2% gain. The company carries a Zacks Rank of 2.
Zacks Top 10 Stocks for 2020
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