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3 Medical Instruments Stocks to Buy Despite Industry Headwinds

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The medical instrument industry has witnessed a significant transformation in the nature of business lately, leading to increased investment in R&D for the development of cutting-edge technologies. The dynamic nature of the COVID-19 crisis has further altered the industry landscape, putting robotic and remote services in the limelight. Meanwhile, despite the ongoing reopening of the economy, a deteriorating international trade condition, with global inflationary pressure leading to an extremely tough situation related to raw material and labor cost as well as freight charges, has put the industry in a tight spot again. Further, industry watchers are still unable to gauge the magnitude of economic revival due to the emergence of new COVID strains in several parts of the world, including the United States and China.

A number of medical instrument companies, which had confirmed a gradual rebound in their base businesses through the first few months of 2022, once again witnessed staffing shortages and supply chain-related hazards in the second quarter of 2022. Meanwhile, industry players like ShockWave Medical (SWAV - Free Report) , Semler Scientific and Asensus Surgical (ASXC - Free Report) that have adapted well to changing consumer preferences are still witnessing an uptrend in their stock prices.

Industry Description

The Zacks Medical - Instruments industry is highly fragmented, with participants engaged in research and development (R&D) in therapeutic areas. This FDA-regulated industry comprises an endless number of products, starting from transcatheter valves to orthopedic products to imaging equipment. Prior to the pandemic, the Medical Instruments space was advancing well in terms of R&D. Among the recent path-breaking inventions, bone growth stimulators, 3D mapping of CT scans, wireless brain sensors and human-brain pacemakers are worth mentioning. However, in the past several months, many non-COVID and non-emergency-line innovations have been stuck or delayed. Edwards Lifesciences is one of the companies whose R&D has taken a hit.

3 Trends Shaping the Future of the Medical Instruments Industry

Business Trend Disruption: Considering the ongoing inflation situation in the form of rising freight, raw material and labor costs, the IMF came up with its July 2022 World Economic Outlook Update. The update noted that a tentative recovery in 2021 was followed by increasingly gloomy developments in 2022. IMF specifically addressed that the worse-than-anticipated slowdown in China, the difficult trade situation in Russia, along with the significant slowing down of U.S. consumer spending in the inflationary phase resulted in output contraction in the second quarter. The IMF update noted that global growth is expected to moderate from 6.1% in 2021 to 3.2% in 2022—0.4 percentage points lower than in the April 2022 World Economic Outlook. This deteriorating economic outlook is evident in the MedTech sector’s sequential business slowdown in Q2. The industry players who had witnessed a strong rebound in product demand across core business segments in the first few months of 2022 are expected to collectively face a setback in terms of reduction in consumer spending and staffing shortages.

M&A Trend Continues: The medical instruments space has been benefiting from the ongoing merger and acquisition (M&A) trend. In fact, various reports suggest that M&A has been the key catalyst in the U.S. MedTech space of late. It is a known fact that smaller and mid-sized industry players attempt to compete with the big shots through consolidation. The big players attempt to enter new markets through a niche product. Among the significant deals of recent times, in August 2022, Bostin Scientific announced the acquisition of privately-held Obsidio, Inc. to expand Boston Scientific’s interventional oncology and embolization portfolio. Further, in March 2022, Owens & Minor acquired Apria for a total transaction value of around $1.60 billion. The acquisition will enable Owens & Minor to better serve the entire patient journey and will position the company as a leader in the home healthcare market.

Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records (EHR), predictive analytics, real-time alerting and revenue cycle management services are gaining prominence in the United States. A June 2019 Health care News report suggested that this market, valued at $123 billion in 2018, has been witnessing a CAGR of 25%. Various other reports suggest that companies that adopted artificial intelligence technologies witnessed a 50% reduction in treatment costs and also experienced more than 50% improvement in patient outcome. Amid the pandemic, this line of healthcare became a major choice for contactless healthcare services. Telemedicine stocks received an impressive response when, in 2021, the Centers for Disease Control and Prevention asked healthcare service communities to broaden the use of telemedicine. Further, the FDA approved the expanded use of remote patient monitoring technologies with the aim of minimizing hospital visits, thereby reducing the risk of exposure to the virus.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Medical Instruments industry’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #154, which places it in the bottom 39% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Underperforms S&P 500, Sector

The industry has underperformed the Zacks S&P 500 composite and its sector in the past year.

The industry has lost 31.7% compared with the S&P 500’s 12.3% fall in a year’s time. The broader sector has declined 26.2% in the said time frame.

One Year Price Performance


Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 31.45X compared with the broader industry’s 20.60X and the S&P 500’s 17.39X.

Over the past five years, the industry has traded as high as 44.67X, as low as 26.82X and at the median of 32.63X, as the charts show below.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)



3 Stocks to Buy Right Now

ShockWave Medical: This medical instrument maker catering to the cardiovascular treatment market is gaining from continued clinical acceptance and penetration of its IVL technology. The increased adoption of coronary IVL in the United States, continued sales force expansion, growing international expansion and higher adoption of Shockwave products contribute to the company’s performance. The company’s strong global growth highlights the significant clinical need for a better calcium treatment and how well the team at ShockWave Medical is addressing the same with IVL.

The Zacks Consensus Estimate for ShockWave Medical’s 2022 sales is pegged at $479.8 million, indicating a 102.3% rise year over year. The same for ShockWave Medical’s adjusted earnings is pegged at $2.57 per share against a loss of 26 cents reported in the year-ago period. ShockWave Medical carries a Zacks Rank #1 (Strong Buy).

You can see the complete list of today's Zacks #1 Rank stocks here.

Price and Consensus: SWAV

Semler Scientific: Semler Scientific provides technology solutions to improve the clinical effectiveness and efficiency of healthcare providers. Semler Scientific's patented and U.S. Food and Drug Administration-cleared product, QuantaFlo is a rapid point-of-care test that measures arterial blood flow in the extremities to aid in the diagnosis of cardiovascular diseases, such as peripheral arterial disease. Semler Scientific is introducing the product extension of QuantaFlo to its existing client base using its current sales team for use as an aid in diagnosing another cardiovascular disease.

The consensus estimate for this Zacks Rank #2 (Buy) company’s 2022 sales is pegged at $58.96 million, indicating an 11.2% rise year over year. The consensus mark for Semler Scientific’s 2023 revenues is pegged at $78.58, indicating an increase of 33.3% from the year-ago period.

Price and Consensus: SMLR

Asensus Surgical: Asensus Surgical is digitizing the interface between the surgeon and patient to pioneer a new era of Performance-Guided Surgery by unlocking clinical intelligence for surgeons to enable consistently superior outcomes and a new standard of surgery. This builds upon the foundation of Digital Laparoscopy with the Senhance Surgical System powered by the Intelligent Surgical Unit to increase surgeon control and reduce surgical variability.

The consensus estimate for this Zacks Rank #2 company’s 2022 sales is pegged at $10 million, indicating a 21.5% rise year over year. The same for Asensus Surgical’s 2023 revenues is pegged at $21.26 million, indicating a 19.4% improvement from the year-ago period figure.

Price and Consensus: ASXC

See More Zacks Research for These Tickers

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Semler Scientific Inc. (SMLR) - free report >>

ShockWave Medical, Inc. (SWAV) - free report >>

Asensus Surgical, Inc. (ASXC) - free report >>

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