5 Medtech Stocks To Watch Out For In 2H16

With the Q2 earnings season almost here, investors seek stocks that not only hedge losses but promise handsome returns. The recent rebound in the major stock markets following the Brexit tremors has also instilled a new level of confidence among investors.

Evidently, both the S&P 500 index and tech-heavy Nasdaq Composite witnessed a 3.9% rise last week, while the Dow Jones Industrial Average (DJI) was up 4%.

However, the global economy continues to be fragile as many investors are still apprehensive of the long-term effects of Brexit. Moreover, there remain uncertainties related to the Fed’s decision on a hike in interest rates as the Brexit event has surely faded any chance of such hike any time soon.

In such a scenario, it is probably best to focus on defensive sectors. One such space is the Medtech industry, given that it has been historically immune to market slumps.

Why the Medtech Industry?

Even as the majority of the primary sectors of the S&P 500 cohort have been seen to falter in recent past, Medical was among the very few that stood strong. Interestingly, MedTech, one of the largest industries under this sector, exhibits similar characteristics, such as strong returns on capital, strict government-enforced restrictions on competition, stable revenues and high margins.

Again, a comparative analysis of Medtech’s achievement with that of the major market indices reflects the industry’s above-market performance. The 1-year return from the S&P 500 index reached 1.65%, while that from the DJI was 1.5%. Meanwhile, the S&P 500 Healthcare Equipment Index returned around 9.3% over the same period.

What’s Driving the Medtech Industry?

There are a number of factors that keep the Medtech industry afloat even in the most challenging circumstances. These include a growing aging population, rapid growth in healthcare spending as a percentage of GDP in the recent years and adoption of next-generation medical devices.

In addition, the recent change in consumer demand and market dynamics led to a dramatic transformation in the healthcare system, as evident from the growing prevalence of minimally invasive surgeries, rising demand for liquid biopsy tests, strategic mergers between industry giants, increasing research and development (R&D) cost at major companies, use of IT for ensuring quick and improved patient care and the shift of the payment system to a value-based model among others.

What to Expect Next?

As far as the Q2 earnings results are concerned, Medical is one of the 6 Zacks sectors (comprising a total of 16 sectors) that is expected to record earnings growth, while the S&P 500 itself is projected to witness a decline. Moreover, as per EvaluateMedTech’s latest report, the global Medtech industry is expected to grow at a CAGR of 4.1% from 2014 to reach a sales value of $477.5 billion in 2020.

How to Pick?

Given the above discussion, well-ranked stocks in the MedTech industry grab a lot of attention, particularly if they are witnessing a surge in share prices and have a decent long-term earnings growth potential.

To find such stocks, we use the Zacks Rank and VGM Score as criteria. Stocks with a VGM Score of ‘A’ or ‘B’ and a Zacks Rank #1 (Strong Buy) or 2 (Buy) promise better returns, on an average, than the individual components, as it considers three times as many items that are correlated to future stock returns.

Our Choices

Here we have picked 5 MedTech stocks with a year-to-date price change of more than 2% and long-term earnings growth of more than 5%, which also boast a favorable Zacks Rank and a VGM Style Score of ‘A’ or ‘B.’

Laboratory Corp. of America Holdings (NYSE:LH) : This Burlington, NC-based company operates as an independent clinical laboratory company worldwide.

• Zacks Rank #2
• VGM Style Score of ‘A’
• Price Change : 6.19%
• Long-term Earnings Growth: 10.2%

Masimo Corp. (NASDAQ:MASI) : This California-based medical technology company develops, manufactures and markets non-invasive monitoring technologies worldwide.

• Zacks Rank #1
• VGM Style Score of ‘B’
• Price Change : 26.4%
• Long-term Earnings Growth: 15%

NuVasive, Inc. (NASDAQ:NUVA) : Based in California, this medical device manufacturer develops and markets minimally invasive surgical products and procedurally-integrated solutions for spinal surgery.

• Zacks Rank #2
• VGM Style Score of ‘B’
• Price Change : 10.83%
• Long-term Earnings Growth: 14.8%

Lantheus Holdings, Inc. (NASDAQ:LNTH) : Based in Massachusetts, this company manufactures, and commercializes diagnostic medical imaging agents and products for the diagnosis and treatment of cardiovascular and other diseases worldwide.

• Zacks Rank #2
• VGM Style Score of ‘A’
• Price Change : 22.49%
• Long-term Earnings Growth: 12.5%

Integra Lifesciences Holdings Corp. (NASDAQ:IART) : This New Jersey-based company manufactures and markets surgical implants and medical instruments for use in neurosurgery, extremity reconstruction, orthopedics and general surgery.

• Zacks Rank #2
• VGM Style Score of ‘B’
• Price Change : 18.3%
• Long-term Earnings Growth: 11.9%