Investors putting money into the medical device space are concerned about complex regulatory procedures coming into the way of infrastructural or technology growth. The FDA’s significantly long-drawn process to review and grant approval to any device is impeding the movement of MedTech stocks on the bourses.
Despite the industry’s ‘non-discretionary’ spending nature, solid long-term potential and favorable demographic trend, investors’ fear of such hindrances has created a gap between the growth potential of this industry and the pace of investment.
Lower investment in MedTech might prove to be a concern, more so as gains within this space are staggering.
A Look Into the Recent MedTech Breakthroughs
The past few months have been remarkable for the medical device space in terms of research and development (R&D). Riding on path-breaking inventions like wireless brain sensors, Bluetooth-enabled smart inhalers, artificial pancreas, human-brain pacemaker, electronic skin that displays vital signs of the body, needle-free injections, precision medicine and many more, the medical device space has gone from strength to strength.
MedTech to Rule the Roost
A June 2019 Fitch report claims that the medical device market will outpace the broader economy based on certain favorable demographic trends (like population growth, aging of baby boomers and the rising prevalence of chronic diseases) and the suspension of the 2.3% medical device excise tax. The industry is expected to grow from about $164 billion in 2018 to $208 billion in 2023 at a CAGR of 4.9%.
While the international trade scenario is a bit tough at present given higher tariffs, uncertainty and tightening credit conditions, per the report, medical device space is in a better position to weather the choppy conditions than the broader economy.
The sales forecast for the space is quite impressive. Per the latest Evaluate MedTech consensus forecasts, the worldwide MedTech market will reach sales of $594.5 billion by 2024, witnessing a CAGR of 5.6% between 2017 and 2024.
Segments to Dominate
Data shows that in vitro diagnostic is likely to remain the sector leader through 2024, steering ahead of cardiology, with 13.4% of the total medical device market and annual growth of 6.1%. Roche Holding AG (RHHBY - Free Report) is expected to lead this space with 18% market share and sales of $12.30 billion by 2024.
Diagnostics imaging and orthopedics, which are already on shaky ground, may prove to be the two slowest growing segments in the said time frame with a CAGR of 3.7% during this period.
MedTech Investing Appears Sensible Now
The above data is just a small indicator of the vast scope of the MedTech market. The most important fact is that the benefit of medical device is not limited to any particular country or geographic territory. With the emergence of complex and transmittable diseases worldwide and with the U.S. economy expected to remain strong in the second half of the year as well, this space is undoubtedly going to be in the spotlight.
Here Are the Picks
Given the diversity in the space, selecting winning stocks is difficult for investors. To make the process easier, we have zeroed in on four stocks, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of the four picks in the past six months.
Haemonetics Corporation (HAE - Free Report) provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. It has a Zacks Rank #1. The Zacks Consensus Estimate for current-year earnings has risen 3.5% over the past 60 days. Moreover, current-year earnings are projected to grow at an impressive rate of 22.56%.
DexCom, Inc. (DXCM - Free Report) is focused on the design, development and commercialization of continuous glucose monitoring systems. The Zacks Rank #1 company is based in San Diego, CA. The Zacks Consensus Estimate for current-year earnings has climbed 81.8% over the past three months.
Orthofix Medical Inc. (OFIX - Free Report) is focused on musculoskeletal products and therapies. The company’s long-term historical earnings growth rate is 6.7%.
BIOLASE, Inc. (BIOL - Free Report) is a global player in the field of manufacturing and marketing of proprietary dental laser systems. Earnings are projected to grow at an impressive rate of 15% over the next five years.
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