Since March, the coronavirus pandemic has dragged the stock market down quite a few times. Attempts to revive the stock market crippled by the crisis, in the form of rescue packages and other financial stimuluses, were able to provide temporary relief. With plummeting share prices, many fundamentally strong stocks slipped in the sell territory leading to widespread panic selling.
Although the tides seem to have been turning over the past few weeks, investors are wary about betting on stocks given the still-choppy economic scenario.
MedTech stocks have been among the worst-hit owing to widespread stay-at-home orders. These orders led to postponement of non-essential and elective procedures, hurting revenues of MedTech companies. Production and supply halts within the space along with rising costs and expenses are leading to significant margin compression as well. The uncertainties regarding financial impacts deferred companies from providing guidance for the upcoming quarters.
The rise in new COVID-19 cases and the shrouded scenario about the release of any vaccine are expected to keep things bearish over the next couple of quarters.
ROE: Ideal for Screening the Best of MedTech Now
At this point, judging any company’s position by looking solely at its current profit margin can be extremely misleading. It is rather wise to gauge the asset management efficiency of the company to create profit.
During difficult times, companies which have proven their mettle in efficient asset management undoubtedly maximize returns during normal times. Here, we choose the Return on Equity (ROE) ratio, which gives investors an idea about the company’s internal heath. In times of economic turmoil, high ROE signifies that the company is a good profit maker under trying conditions and thus can provide great returns to investors.
4 Stocks to Buy
To narrow down the list, we have selected stocks with a Growth Score of A or B. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have a strong ROE (greater than 10%), which is an indicator of sustainable growth. On rising share prices over the past few months, these stocks are extremely attractive picks now.
Listed below are four companies that investors can consider during these vexing times.
ResMed Inc. (RMD - Free Report) , a Zacks Rank #2 company with a Growth Score of B, has been a consistent performer, even during this demanding situation. It has been ramping up production of ventilators, masks and other respiratory devices since March, encouraged by a significant surge in demand for its critical care products during the first quarter. The company produced more than 52,000 non-invasive ventilators, including bilevels and invasive ones, marking a three-fold increase in production from the year-ago period. This boosted its first-quarter results across geographies. It also launched cloud-based remote monitoring software for ventilators and Lumis bilevel devices across Europe via its AirView platform. The launch was in line with the requirement of ventilators by patients on a daily basis for assisted breathing.
The stock’s ROE stands at an impressive 29.3% against the industry’s negative 8.6%. Further, its sales-to-asset ratio stands at 0.7 compared with the industry’s 0.5. Over the past three months, the stock has gained 17.4% compared with the industry’s 1.8% rise.
Global manufacturer of integrated containment and delivery systems for injectable drugs and healthcare products, West Pharmaceutical Services, Inc.’s (WST - Free Report) strong first-quarter 2020 results despite the challenges posed by the pandemic-led business disruptions were impressive. The Zacks Rank #2 company, having a Growth Score of A, delivered strong sales growth in high-value products, resulting from robust demand from its global customer base. Further, the company is partnering with a wide range of customers who are currently working to support efforts to develop solutions addressing the COVID-19 pandemic, such as diagnostics, anti-viral therapeutics and vaccines.
Its ROE stands at 17.7% compared with the industry’s 12.8%. Further, it projects earnings per share growth at 11.5% against the industry’s estimation of a fall of 11.8%. Over the past three months, the stock has rallied 38.8% compared with the industry’s 11% rise.
National operator, manager and franchisor of chiropractic clinics, The Joint Corp. (JYNT - Free Report) announced the opening of two corporately-managed clinics in the Los Angeles area on Jun 1 and Jul 1. This expands the regional cluster of corporate and franchised clinics to 30 and The Joint total corporate clinic portfolio to 63. The Zacks Rank #2 company, with a Growth Score of B, performed impressively in the first quarter of 2020 where it increased its system-wide sales as well as total clinic counts.
Its ROE stands at a solid 66.4% compared with the industry’s 17.6%. Further, its historical cash flow growth stands at 56% compared with the industry’s 13.6%. Over the past three months, the stock has rallied 23.5% compared with the industry’s 2.6% rise.
Dental and animal health player Patterson Companies, Inc.'s (PDCO - Free Report) consistent efforts to drive profitability in core business look impressive. The company currently carries a Zacks Rank #1 and has a Growth Score of B. We believe that a diverse product portfolio, strong veterinary business prospects, accretive acquisitions and strategic partnerships are acting as primary catalysts. Encouraged by strong performance, the company raised outlook for fiscal 2020, thereby instilling investor optimism in the stock.
The stock’s ROE stands at a stellar 11.2%. Its sales-to-asset ratio is 1.7 compared with the industry’s 1.1. Over the past three months, the stock has rallied 55% compared with the industry’s 11% rise.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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