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3 Growth Stocks to Tap the COVID-Driven Shift in MedTech

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The medical device industry has literally been on fire in 2020, thanks to the impact of the pandemic on the world healthcare setting. Over the past nine months, there has been a sea change in the MedTech utilization pattern for both manufacturers and consumers as a result of coronavirus-induced lifestyle shifts.

While there was a sizable drop in elective and non-COVID-19 procedures, demand for diagnostic tests has reached a record level, translating into all-time highs for makers of these tests. We may take the example of diagnostic testing major Quest Diagnostics (DGX - Free Report) and its peer LabCorp (LH - Free Report) . In the course of expanding their COVID-19 testing capacities, these stocks reached their all-time highs of $131.81 and $218.77 on Aug 3 and Nov 5, respectively.

Other than these, several critical medical supplies (CT machines, dialysis equipment or ECMO machines), personal protective equipment (PPE) and ventilator makers comprise a large part of the MedTech success story amid one of the greatest disasters in history.

Will This Pattern Last in 2021?

Whether Pfizer (PFE - Free Report) and Moderna (MRNA - Free Report) get fast Emergency Use Authorization from the FDA or not for their vaccine shots, the failure of public health measures to limit infection transmission followed by the resurgence of new COVID-19 cases are clear indications that the ongoing behavioral change in MedTech is here to stay. Hologic (HOLX - Free Report) CEO Stephen MacMillan recently noted that COVID-19 is likely to be the biggest molecular testing category for the next couple of years (as per a Medtechdive report).

Here, we should also talk about the state of MedTech valuation, which is on the rise and has already grown stronger than the pre-pandemic level. During the initial phase of the pandemic, MedTech sector’s valuation hit a low in March 2020. However, in no time it recovered stronger than expected. An EY Global report claims that by the end of August 2020, MedTech’s valuations were 50% above its January 2019 level. This was a much stronger recovery compared with the major benchmarks (the New York Stock Exchange and the S&P 500 composite were up 15% and 40%, respectively over the same period).

The digital health companies are one of the major growth drivers here (valuation up 65%) on growing investors’ sentiment over enhanced use of virtual health and other remote technologies. The FDA’s recent approval of expanded use of smart health technologies to lower hospital visits shows that the digital trend is likely to continue.

Invest in MedTech Growth Stocks for Lasting Gains

Although there has been a dramatic increase in MedTech debt financing levels over the past few months on bottom-low interest rates, this mainly involved the bigwigs. The smaller players have hardly taken part in this game for their R&D investments.

In such a scenario, investors can now scoop up some fundamentally-strong MedTech growth stocks. These companies, based on the nature of their business, have strong potential for long-term growth.

3 Stocks to Buy

To narrow down the list, we have selected stocks with a Growth Style 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.

The first company that investors can consider is animal health player, IDEXX Laboratories, Inc. (IDXX - Free Report) . This Zacks Rank 2 company, with a Growth Score of B, has been showing strong growth within its Companion Animal Group business, supported by high organic gains in both the U.S. and International markets. Management is also upbeat about the sustained strong recovery in pet healthcare. Its long-term historical earnings per share (EPS) growth rate currently stands at 19.9% versus the industry’s 12.1%. Over the past nine months, this stock has risen 96.2% compared with the industry’s 47.5% rise.

The second pick in this line is LabCorp. In the past few months, the company’s diagnostics revenues have been significantly high on organic volume improvements as a result of growing demand for COVID-19 testing. Also, of late, the company has started to register recovery in its base business with people resuming their routine preventive visits, actively caring for their chronic conditions and moving ahead with elective surgeries and other procedures.

This Zacks Rank 1 company has a Growth Score of A, Over the past nine months, this stock has risen 73.5% compared with the industry’s 43.3% rise. Its long-term historical EPS growth rate currently stands at 9.4% compared with the industry’s 8.6%.

The third company on our list is Thermo Fisher (TMO - Free Report) , which has delivered an outstanding performance through the past nine months, leveraging on its capacity to extend support amid the pandemic. The company’s global pandemic response includes the launch of the Amplitude Solution to automate high-throughput PCR-based testing, significant capacity expansion for viral transport media production in Europe and introduction of two COVID-19 antibody tests that are currently available in the United States and Europe. Further, in terms of the development of therapeutics and vaccines, Thermo Fisher is partnering with a number of pharma and biotech companies who are working on pandemic-related projects.

This stock carries a Zacks Rank 2 along with a Growth Score of A. Over the past nine months, this stock has risen 69.1% compared with the industry’s 47.5% rise. Its long-term expected EPS growth rate currently stands at 18% compared with the industry’s 14.3%.

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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