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Obamacare Holds Ground: 3 Medical Device Stocks to Gain

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“Love it or hate it, Obamacare is the law of the land”

Nothing could be more apt than this remark once made by Hank Johnson. It seems that Republican leaders have failed to play their ‘Trump card’ this time, courtesy of the pullback of the Republican healthcare bill, the American Health Care Act (ACHA), which was designed to repeal the Affordable Care Act (ACA) or Obamacare.

Interestingly, the AHCA failed to gather support in House, thanks to solid opposition from both conservative and moderate lawmakers. On analyzing the reasons for the bill defeat, the grand plans of slashing Department of Health and Human Services (hampering research initiatives) funds under the budget blueprint seems to be one of the major reasons. Furthermore, the ‘warning’ report by the U.S. Congressional Budget Office, which estimated around 24 million Americans without insurance coverage by 2026 (if the new act is signed into law) added to the woes.

Undoubtedly, the latest news was quite a breather for the healthcare community. This is primarily because, post the publication of the budget blueprint for AHCA and the euphoria over its tagline “to make America great again”, the question that loomed large was: “How can such a massive investment-cut to the biomedical research be a ‘great’ step ahead of a nation’s development?”

Why Is the Healthcare Industry Happy?

Firstly, the budget blueprint for the ACHA proposed a solid 18% reduction of discretionary spending at the Department of Health and Human Services from the fiscal 2017 level. This had also aimed at reducing the National Institutes of Health’s (NIH) funding by $5.8 billion to $25.9 billion.

The move was vehemently criticized from majority of the bio-research agencies and academic institutions in the U.S. NIH have been and will be ‘the’ pillar of the American healthcare Fraternity. Furthermore, the institute’s current medical research projects that include the Precision Medicine Initiative, The BRAIN Initiative, Accelerating Medicines Partnership, Rigor and Reproducibility would have reached a deadlock after the funding cut.

Secondly, Trump intended to prioritize research and training activities covering issues of prime concern for the nation. These included an emergency response fund pertaining to epidemics such as the Zika Virus, global HIV programs, opioid epidemic, and mental health. On the contrary, a report by the Motely Fool suggests that the health issues that majority of the Americans go through include hypothyroidism, high cholesterol and gastroesophageal reflux. Interestingly, neither Zika virus nor the HIV symptoms topped the lists.

Thirdly, we believe the pull-back of the Obamacare-repeal proposal was a dramatic rescue for the medical device industry, especially for small companies that don't have much funds to spend on user fees. In this regard, ‘Trumpcare’ had proposed a hike in U.S. FDA medical product user fees, increasing the amount to over $2 billion by 2018. This would have been a burden for the digital health industry and small companies in the medical device space.

Under the existing schedule, the FDA is authorized to collect $999.5 million in user fees and inflationary adjustments from the companies. The usage fees are already sky high and a further hike would only have raised regulatory barriers, adding to the concerns of small-to-medium sized medical device companies.

Threat Remains

The healthcare fraternity seems extremely happy with the defeat of 'Trumpcare.' However, market analysts believe that it is too early to come to any conclusion. In fact, they are apprehensive about the fact that if Obamacare is back, it will imply cancelation of the Republican plan to permanently repeal the infamous 2.3% medical device tax.

3 Medical Device Stocks in Focus

While the Medical Device industry has been oscillating between hope and despair, we believe stocks with strong fundamentals and a significant share of business overseas may be well poised to gain. Take a look at stocks that will make lucrative additions to your portfolio in this scenario.

Inogen Inc. (INGN - Free Report) develops, manufactures and markets portable oxygen concentrators (POC). POCs are used by patients who suffer from chronic respiratory conditions and need long-term oxygen therapy. Of the major positives, revenues at Inogen multiplied at a CAGR of 45.6% over the last three years. Notably, the stock sports a Zacks Rank #1 (Strong Buy).

Inogen generates a significant portion of its revenues from international markets. In fiscal 2016, the company’s business-to-business international sales accounted for almost 25% of net revenues, increasing 41.8% on a year-over-year basis.

Inogen has had an impressive run on the bourse over the past one year, representing a stellar return of 81.4%, much higher than the Zacks categorized Medical Instruments sub-industry’s increase of roughly 10.03%.

MesaLaboratories (MLAB - Free Report) designs, manufactures and markets quality control instruments and disposable products. Revenues at the company grew at a CAGR of 22.7% over the last four years. Mesa Laboratories has a Zacks Rank #2.

The company has been gaining prominence of late with a solid distributor-base across the U.S., Europe, Africa, Asia, South America, Australia and more.

The stock gained 30.3% over the last year, better than the broader industry.

Masimo Corporation (MASI - Free Report) develops, manufactures and markets a family of non-invasive monitoring systems. The stock has a compelling fundamental growth story with revenues and adjusted earnings multiplying at CAGR of 8.5% and 6.7% over the last four years.

Masimo’s top line has been leveraging on its international operations for long. In fact, the stock gained considerably in fiscal 2016, especially outside the U.S. as total international sales jumped nearly 12%, with Latin America and Asia showcasing solid growth. The stock has a Zacks Rank #2. We note that Masimo added 128.6% over the last year.

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