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4 Dividend-Paying Undervalued MedTech Stocks for Gains in 2021

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The first week of 2021 is just over but market watchers are already coming up with their distinct views about MedTech sector’s annual projection. Despite the pandemic-led procedural volume decline through 2020, this industry demonstrated relative stability compared to others, banking on surging demand for critical care and COVID-19 support products.

Not just that, the pandemic-led need for no or limited physical contact made 2020 a banner year for digital health and remote patient monitoring. Unsurprisingly, a series of digital healthcare companies that successfully evolved to meet the new normal healthcare needs remained in the limelight through the year.

The NASDAQ-based MedTech-loaded ETF Index iShares U.S. Medical Devices (IHI) rose 23.8% gain in 2020. SPDR S&P Health Care Equipment ETF (XHE) rallied 32.9%, riding on this evolving trend.

2021 Prospects Mixed

Going by AON Corporation’s 2021 Global Medical Trend Rates Report, employer medical benefits across the world are forecast to rise 7.2% in 2021, outpacing the general inflation rate of 5%.

Expecting healthcare cost to exceed inflation rate in 2021, some economists predict MedTech to be closed watched by investors as this year healthcare spending could hit a significant 20% of GDP. This prediction is based on CMS’ last-published National Health Expenditure projections that say healthcare spending is likely to grow 5.5% per year till 2027 and outpace the rise in inflation.

Many Wall Street analysts also hold this promising view and expect this sector to outperform 2021 expectations.

However, with the resurgence of new cases and emergence of the more infectious strain of coronavirus, many analysts expect another drop in economic activity due to which the elective part of medical care might again take a backseat just like last year. They apprehend that this might all over again dampen revenue streams of MedTech makers.

UBS however argues that pent-up demand will lead to elevated levels of utilization in the second half of 2021 and continue into 2022 (as published in MEDTECHDIVE Report). BofA Securities too believes that although the near-term outlook is choppy, on a 12-month basis, large-cap companies will benefit from the second-half recovery.

Dividend-Yield Value Stocks in Focus Now

Amid this financial instability and uncertainly, it is a prudent idea to pick dividend-paying stocks as these companies are financially stable, accruing profits in established markets. These stocks, irrespective of market movements, allow investors to enjoy a regular income stream.

Undoubtedly, 2021 too is going to witness the lingering effects of the pandemic. However, at the same time, if a second-half recovery is truly in the cards, we may consider investing in fundamentally strong stocks, even if they are beaten down now and trading cheap due to the elective nature of businesses.

These stocks hold huge upside potential during a recovery and are expected to recover through 2021 while providing steady flow of regular dividend income.

Choosing the Right Stocks

We have used the Zacks Stock Screener to narrow down to four stocks that provide regular dividend and have favorable Zacks Rank and/or solid metrics. These stocks also hold a Value Score of B or better. 

2020 Stock Performance

McKesson Corporation (MCK - Free Report) : The company’s multi-year growth initiatives, strong position in distribution market and prudent acquisitions and collaboration continue to favor the stock. Its strong fiscal 2021 outlook also buoys optimism. This Zacks Rank #2 (Buy) stock with a Value Style Score of A is a prudent buy now. McKesson has a dividend yield of 1%. The company’s 2021 expected earnings growth rate is pegged at 8.2%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cardinal Health Inc. (CAH - Free Report) : Despite the decline in volumes related to COVID-19, the segment witnessed an increase of 1% in profits to $402 million driven by increase in contribution from brand sales mix. Despite the decline in volumes related to COVID-19, Cardinal Health’s Pharmaceutical segment is witnessing an increase in profits driven by an increase in contribution from brand sales mix. The company carries a Zacks Rank #3 (Hold) along with a Value Style Score of A at present. The company’s fiscal 2022 expected earnings growth rate is pegged at 6.1%. Cardinal Health has a dividend yield of 3.5%.

Becton, Dickinson (BDX - Free Report) : Also known as BD, this company continues to see solid demand for its products that support the global COVID-19 response, especially its recently launched COVID-19 rapid point-of-care antigen test. A plethora of recent regulatory approvals instill optimism. This Zacks Rank #3 stock has a Value Style Score of B at present. The company’s 2021 expected earnings growth rate is pegged at an impressive level of 22.6%. BD has a dividend yield of 1.3%.

Hill-Rom Holdings (HRC - Free Report) : Geographically, the company’s international performance has been strong due to a surge in demand for COVID-19-related products like ICU and med-surg beds, thermometry and vital signs monitoring equipment. Also, the company’s newly-initiated long-term growth strategies through fiscal 2022, focusing on all four strategic priorities look attractive at this moment. This Zacks Rank #3 stock has a Value Style Score of B at present. The company’s fiscal 2022 expected earnings growth rate is pegged at an impressive level of 14.7%. Hill-Rom has a dividend yield of 1%.

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