5 Growth Stocks In MedTech Set To Scale Higher In 2018

The U.S. investment market has scaled new highs on the latest Republican tax cuts and robust economic growth at home and abroad.

In fact, the MedTech sector is looking forward to the latest decision of the Senate to postpone an industry-wide excise tax (Medical Device’ tax) by another two years. The bill will also delay the Cadillac tax (a 40% tax on employer insurance), until 2022. The Medical Device tax imposes 2.3% excise tax on MedTech manufacturers, reducing the research and development (R&D) prospects.

Not just abatement of the taxes, the MedTech fraternity has also been riding high on the ongoing merger and acquisition (M&A) trends in the space. In fact various reports suggest that M&A has been the key catalyst of the U.S. healthcare space of late. Per data provided by BioSpectrum Asia, M&A activity in the MedTech space surged 50% in 2017, increasing the value of aggregate M&A to more than $200 billion.

M&A in Focus

We believe the M&A strategies will reduce pricing pressure and competition in the MedTech space. Further, the companies with a strong acquisition policy will expand customer base faster, moderate leverage and enhance cash flow.

Glancing through the major acquisitions of the recent past, Becton, Dickinson and Company’s acquisition of C. R. Bard, and JOHNSON & JOHNSON’s buyout of Actelion deserve a mention.

Further, health insurers are trying to collaborate with pharmacy benefit managers to streamline and cut costs in the drug supply chain. In this regard, the latest buyout of Express Scripts by Cigna (NYSE:CI), which follows just three months after drug chain and pharmacy giant CVS Health Corp (NYSE:CVS) announced plans to acquire the nation's third-largest health insurer Aetna (NYSE:AET), is important.

Combined with the postponement of the taxes and a solid M&A policy, the Medtech sector is poised to grow in the coming quarters.

Our Screening Parameters

In order to save investors the time-consuming process of identifying the best performing MedTech stocks, we have taken the help of the Zacks Stock Screener.

We have selected stocks that have a favorable Growth Style Score of A or B and carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 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. Furthermore, the selected stocks boast a VGM Score of A or B.

Under the Zack Style Score system, V stands for Value, G for Growth and M for Momentum. The VGM Score is simply a weighted combination of these parameters and is a comprehensive tool that allows investors to filter through the standard scoring system and pick the winning stocks.

5 MedTech Growth Stocks in Focus

Amedisys, Inc. (NASDAQ:AMED) : This stock carries a Zacks Rank #2. Additionally, the stock has Growth Score of B and a VGM Score of A. The long-term expected earnings growth rate of 19.5% holds promise.

We are upbeat about the company’s solid performance in the recently-launched Personal Care segment. A favorable demographic trend and strategic acquisitions bode well for the company.

Over the past three months, Amedisys has been outperforming the industry it belongs to. Per the last trading session, the company gained 15.8%, as compared with 9.7% growth of the industry.

HCA Healthcare, Inc. (NYSE:HCA) : This Zacks Rank #1 stock promises long-term expected earnings growth of 11.5%. Notably, the company has Growth Style Score of B with a VGM score of A.

The company’s strong 2018 revenue guidance instills confidence in investors. The company expects 2018 revenues in the range of $45-$46 billion, up 4.3% from 2017.

HCA Healthcare’s shares have outperformed the industry. The stock gained nearly 20.2% in the past three months, outperforming the industry's growth of 18.1%.

Express Scripts Holding Company (NASDAQ:ESRX) : It sports a Zacks Rank #1 and promises a long-term expected earnings growth rate of 8.7%. The company has Growth Score of A and a VGM score of A.

The company has been benefiting from a rise in patient claims and strong customer retention lately. Express Scripts’ solid guidance for 2018 holds promise. For the full year 2018, adjusted earnings are estimated in the band of $9.27-$9.47, reflecting growth of 31-33% year over year.

Express Scripts’ stock has outperformed the industry in the past three months. Specifically, the stock gained 17.8% compared with the industry's growth of 11.3%.

Phibro Animal Health Corporation (NASDAQ:PAHC) : This Zacks Rank #2 company has a long-term expected earnings growth rate of 8.3% and Growth Score of B. This stock boasts a VGM score of A.

We are also encouraged by the raised guidance for fiscal 2018. The bullish trend is expected to continue through 2018. The company anticipates generating net sales of $800-$825 million compared with the previous $765-$790 million for fiscal 2018.

Over the last three months, Phibro has been trading above the industry. Currently, the stock has gained 20.3%, compared with 7.5% growth of the industry.

Universal Health Services, Inc. (NYSE:UHS) : The stock has a Zacks Rank #2 and Growth Score of B. The company has a long-term expected earnings growth rate of 10.9%. The stock also has a VGM score of A.

Over the years, acquisitions have played a key role in building Universal Health’s growth trajectory. The strong 2018 guidance is also encouraging.

In a month’s time, shares of Universal Health have gained nearly 9% compared with the industry’s growth of 7.2%.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>