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3 Undervalued MedTech Stocks to Stay Safe From Trade War

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While U.S.-North Korea ties have strengthened of late, the ongoing trade war with China is a concern for the medical device fraternity. China has vowed to respond to U.S. tariffs on $34 billion of its imports. With President Trump warning that the United States may ultimately target more than $500 billion worth of Chinese goods, many apprehend possibilities of trade loss.

Going by data provided in an article by Christian B. Jones in Mondaq, MedTech firms in the United States currently sell $4.7 billion worth of goods annually to China, while the nation imports a total of $5 billion value of medical devices. U.S. exports of medical devices last year totaled $52 billion, creating a $1-billion worldwide trade surplus. Hence a war between the world’s two biggest economies is likely to negatively impact the medical device industry.

While the U.S. medical device market is currently facing huge trade-war related upheaval, let’s take a look at some tailwinds that are currently shaping the medical device industry.

Strong Growth Projection

The medical device market is currently expected to rise on a growing aging population and surging life expectancy rates. An Emergo article says that the U.S. medical device industry, valued at $147.7 billion in 2016, is projected to grow to $173 billion in 2019.

Medical Device Tax Suspension

The recent suspension of the controversial 2.3% Medical Device tax has been a godsend. The excise tax was implemented in 2013 under Obamacare on MedTech manufacturers, significantly restricting R&D activities.

Per an article published in tctMD, the Medical Device tax was responsible for a $3.7-million loss of overall sales of companies.

Hence, the tax deferral is likely to provide the companies a competitive edge.

Big Data in Healthcare

Big data analytics is revolutionizing the healthcare industry in the form of electronic health records (EHR), electronic medical records (EMR), predictive analytics and revenue cycle management services. A study by Research and Markets shows that big data in healthcare garnered $11.45 billion in 2016 and the market is expected to grow double-digits in the 2017-2025 period.

The cloud-based EHR model is the most common application of big data in healthcare. Transparency Market Research opines that the global EHR market is expected to see a CAGR of 5.7% from 2017 to 2025, to reach an estimated value of $38.29 billion.

One of the MedTech bigwigs which is currently hogging the limelight is athenahealth Inc. (ATHN - Free Report) . The company’s cloud-based big data network — athenaNet — deserves a special mention here.

Picking the Right Stocks

Against this slightly disorderly backdrop, it would be wise to pick stocks that are currently undervalued but have bright prospects. Such stocks are likely to log massive gains over the longer term if the market picks up.

The Zacks Style Score comes handy in this regard. The Value Style Score helps us filter stocks which are undervalued and hold solid growth potential. With the help of the Zacks Stock Screener, we have zeroed in on three medical stocks, which are currently positioned well in the U.S. MedTech space.

We have included stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) along with a Value Score of A or B. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, are better picks than most. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our first pick is Integer Holdings Corporation (ITGR - Free Report) . The stock carries a Zacks Rank #2 and a Value Score of A. The stock currently trades at a forward P/E ratio of 19.5x, which is much lower than the industry’s average of 32.6x to which it belongs. Moreover, the stock trades at a PEG ratio of 1.3x, much lower than the industry’s average of 2.7x.

In the past six months, the stock has returned 43.9% against the industry’s decline of 9.4%.

Next on our list is Lonza Group Ag (LZAGY - Free Report) . The Zacks Rank #2 stock carries a Value Score of B. The stock currently trades at a forward P/E ratio of 20.2x, much lower than its industry’s average of 25.3x. The stock further trades at a PEG ratio of 2x, lower than its industry’s average of 2.4x.

In the past three months, shares of Lonza Group have rallied 13.5%, compared with the industry’s rise of 9.5%.

Investors may also consider Computer Programs and Systems, Inc. (CPSI - Free Report) . The Zacks Rank #2 stock carries a Value Score of B. The stock currently trades at a forward P/E ratio of 14.4x, much lower than its industry’s average of 27.2x. The stock also trades at a PEG ratio of 1.4x, lower than its industry’s average of 2.1x.

In the past six months, the stock has gained 12.5%, compared with the industry’s rally of 6.5%.

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