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Fed Eyes Faster Recovery in 2021: 3 MedTech Stocks to Buy

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The last year was no less than a rollercoaster ride for MedTech with the coronavirus catastrophe hurting the economy like never before, jeopardizing domestic as well as international trade. With the first quarter of 2021 almost coming to an end, the initial enthusiasm of the economists and market watchers regarding a strong 2021 rebound have been dampened by the emergence of new waves and new virus strains.

While full-fledged vaccine rollouts are going on, MedTech industry players are still confused and unable to gauge the magnitude of economic revival in 2021. However, the Mar 17-released ‘Economic Projection’ by the Federal Reserve (Fed) stating possibility of faster-than-expected U.S. economic recovery in 2021 has once again lifted market sentiment.

Fed’s Estimates at a Glance

Per Fed, average economic growth is expected to be 6.5% in 2021, a significant rise from December 2020 prediction of 4.2%. Unemployment rate is pegged at 4.5% for 2021, a reduction from December prediction of 5%. Core PCE inflation (the percentage rates of change in the price index for personal consumption expenditures excluding food and energy) is now expected at 2.2% (up from 1.8% projected earlier).

The Fed’s upbeat forecast and once again possibility of near-zero interest rate has significantly bolstered investors’ confidence across all major sectors including MedTech.

According to a Global Times article, "Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak," the Fed said in a statement after concluding its two-day policy meeting.

MedTech Trends So Far in 2021

While there has been a sizable drop in elective and non-COVID-19 procedures in 2021 given the resurgence in cases, demand for diagnostic tests has again reached a record level so far this year, translating into all-time highs for makers of these tests. Diagnostic testing majors, Quest Diagnostics (DGX - Free Report) and its peer LabCorp (LH - Free Report) , in the course of expanding their COVID-19 testing capacities, reached their all-time highs of $133.34 and $247.15 on Feb 1 and Feb 23, respectively. Further, Hologic (HOLX - Free Report) , banking on its significant progress in the line of SARS-CoV-2 based molecular diagnostic testing, reached an all-time high of $83.72 on Feb 4.

Other than these, critical medical supplies (CT machines, dialysis equipment or ECMO machines) and personal protective equipment (PPE) makers comprise a large part of the MedTech success story amid one of the greatest disasters in history. Since the start of the pandemic in March 2020, masks and ventilators maker, ResMed (RMD - Free Report) has significantly ramped-up demand for its critical care products and the stock eventually reached its all-time high of $222.28 on Jan 26.

Further, with an increase in the adoption of digital platforms within the medical device space, remote monitoring, robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records (EHR), predictive analytics, real-time alerting and revenue cycle management services gained prominence in the pandemic period. This line of healthcare suddenly became a major choice for contactless healthcare services. 

Meanwhile, 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’s CEO Stephen MacMillan recently noted that COVID-19 is likely to be the biggest molecular testing category for the next couple of years (per a Medtechdive report).

MedTech Index Moves Higher in 2021

Year to date, the NASDAQ-based MedTech-loaded ETF Index SPDR S&P Health Care Equipment ETF (XHE) has gained 4% riding on this evolving trend.

Best MedTech Stocks to Buy in 2021

The above trend is expected to help the following MedTech stocks, maintain market beating momentum in 2021. We have narrowed our search to the following stocks based on a favorable Zacks Rank and strong prospects for 2021.All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Year-to-Date Share Price Comparison

InMode Limited (INMD - Free Report) : In 2021, the company has been actively working to make way for new medical categories such as OB/GYN, offering complementary solution to their practices. It also plans to expand into ophthalmology market while continuing to grow its presence in the plastic surgery, dermatology and OB/GYN communities. Additionally, InMode also has plans to further expand international sales and marketing operation, while focusing on Europe and Asia-Pacific in 2021.

For 2021, InMode’s expected revenue growth rate of 25.8% exceeds that of the S&P 500 index’s 8.9%. Its shares have gained 46.8% year to date, outperforming the S&P 500’s rally of 4.6%.

Bioanalytical Systems : The company as a relatively small publicly traded CRO is actively participating in faster growing client segments, such as small biotech, single molecule drug development, individualized medicine, gene and cell therapy under which it is sees an exciting long-term growth prospect.

For 2021, Bioanalytical Systems’ expected revenue growth rate is 15%. Its 2021 earnings growth expectation is pegged at 40%, exceeding the S&P 500 index’s 24.1%.  The stock has gained 22.1% year to date.

Semler Scientific Inc. (SMLR - Free Report) : The company expects revenues to continue to grow in 2021 courtesy of increased number of installations and more usage of products and recurring revenues from the licensing business. According to the company, the market for vascular disease testing is larger than the current market penetration. Accordingly, there’s room for a continued growth in the coming quarters.

For 2021, Selmer’s expected revenue growth rate is 50.2%. Its 2021 earnings growth expectation is pegged at 39.3%.  The stock has gained 10.6% year to date.

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