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Medical Stocks - Best Medical Technology Stocks to Buy

Posted on Thursday, November 21st, 2019 by Matthew Sweeney

Medical Stocks - Best Medical Technology Stocks to Buy

The medical technology industry—also known as the medical device industry—produces and sells medical devices used to treat, diagnose, or prevent diseases. The medical device industry covers a wide range of different types of products, but does not include pharmaceutical drugs (which is part of the biotech industry). Anyone interested in learning more about the medical technology sector should be aware of the world’s top medical technology companies.

Top Medical Device Companies in the World

The medical technology industry is a fascinating sector of the healthcare industry. As with the healthcare industry as a whole, the medical device sector is likely to benefit from rapidly advancing technology paired with a large aging population.

Medical Technology Industry

The medical technology industry has historically seen strong growth, and it seems likely that this trend will continue. However, not every company in the industry will be able to participate in this growth.

Today, the United States leads the medical technology industry, with American consumers accounting for 40% of the medical technology market, which was valued at $156 billion in 2017. By 2023, the industry is expected to reach $208 billion. The medical technology industry is also a huge employer, either directly or indirectly employing over two million people worldwide.

To better understand the medical technology industry, it’s helpful to understand the life cycle of a company. The startup phase is often years long and usually involves losing quite a bit of money as the company finds its footing. In this phase, the company must create new devices, or new uses for existing devices, and gather data from clinical trials. If this goes well, then the company must gain approval from the FDA. After getting FDA approval, the company must then market the drug effectively. Only after all of this has occurred do companies have a chance of becoming profitable.

Very few medical technology companies ever become major players in the industry. Those that do must continue to develop new products while also growing their existing business. Due to this life cycle, it makes sense that medical technology companies have a heavy focus on Research and Development (R&D). Investors should be aware that many companies fail to progress beyond clinical trials.

Top Medical Device Companies in the World

The following are some examples of companies that have been able to progress through the medical technology life cycle and emerged as leaders in the industry.

Zimmer Biomet is a musculoskeletal healthcare company with a global presence. The company’s core business is creating and selling orthopedic medical devices. The total return of the company’s stock price has grown by 36% in 2019. This is considerably better than the 25% increase the S&P has seen. The company’s third quarter earnings report continued the company’s trend of strong growth, with net sales reaching $1.9 billion in the third quarter. This is a 3% increase from the same quarter of the previous year.

One potential area of concern is Zimmer Biomet’s high level of debt. At the end of 2019, the company had $8.35 billion in debt. Though this is almost $1 billion less debt than it had one year prior, it is still a large amount. Debt is not necessarily a bad thing, but high levels of debt should be a sign for investors to use caution. The company has enough free cash flow that the high level of debt is not likely to pose an immediate concern, but it is definitely something that investors should watch closely.

Danaher has historically been one of the medical device stocks to weather economic downturns exceptionally well. This makes it a good defensive stock because the majority of the company’s profits come from more defensive sources, which include dental, diagnostics, life sciences, and environmental solutions. These sources tend to continue rising regardless of how the stock market and economy are performing. This defensive position has caused many investors to purchase the stock, and has even made it one of the most active stocks. This high number of investors purchasing the stock has led to an expensive valuation. This means that investors may want to tread with caution and make sure to do their research prior to investing in Danaher.

Danaher saw a strong 2019, but its third quarter earnings report did not meet expectations and the company saw a dip in its share price. Danaher’s third quarter earnings were not all bad, however, with a total revenue of just over $5 billion—an increase of 4% compared to the same quarter of the previous year. A deal is currently in the works for Danaher to purchase General Electric’s biopharma business, which has the potential to give Danaher a huge competitive advantage. For those with a dividend investing strategy who are looking to invest in dividend stocks, it may be worth noting that Danaher pays dividends.

Baxter is an international healthcare company. The company’s core business is creating and selling products that treat chronic and acute medical conditions, including hemophilia, kidney disease, cancer, and various immune disorders. Baxter had a strong 2019 - until late October. That's when the share price dropped drastically after the market reacted to news that the company was under investigation and an unrelated formal complaint had been filed. As a result, the company’s valuation dropped by over $4 billion. The internal investigation is investigating misstatements in foreign currency gains. Though these misstatements occurred in 2014, the issue could have major implications for the future of the company. Baxter has said that the misstatement was due to the use of an incorrect exchange rate, causing the company to incorrectly calculate how foreign currency transactions impacted the company.

The complaint against the company is in regard to the opioid epidemic. A county in Georgia filed a complaint alleging that one of Baxter’s products, which allows individuals to inject opiates, harmed the county. Only time will tell what the long-term implications will be of these events. It’s possible that Wall Street overreacted to the news, but it’s also possible that these two events, especially the internal investigation, will have an impact on the future of the company.

Though a large percentage of medical technology companies are based in the United States, there are also plenty of major medical technology companies in other countries. Siemens Healthineers is a healthcare company based in Germany that holds multiple medical technology companies throughout the world. Earlier this year, Siemens Healthineers invested $350 million euros into a new campus.

Investors should be aware that Siemens Healthineers operates on a fiscal year and not a calendar year. The company’s fiscal year ended on September 30, 2019. This means that the company’s 2019 fourth quarter fiscal earnings have already been released. Siemens Healthineers saw a strong fourth quarter in 2019. Both net profit and revenue increased. Revenue increased by 12% compared to the same quarter in 2018.

GE Healthcare has had a dramatic history. In 2018, General Electric announced that the company would be spinning off its healthcare business into a stand-alone company called GE Healthcare. General Electric filed for an IPO in December of 2018. Then, in early 2019, General Electric announced that it will be selling its biopharma business to Danaher.

However, selling the biopharma business caused General Electric to rethink an IPO of GE Healthcare. There have been conflicting reports that the IPO had been scrapped entirely, or that the IPO would occur in 2020, or that the IPO was still on the table, but was not a sure thing. Investors will have to wait and see what happens—but no matter what, General Electric’s healthcare business is large. Investors interested in the medical technology sector, biotech therapies, and the healthcare industry as a whole should wait to see what happens next.

Intuitive Surgical creates robotics that are used in minimally invasive surgical procedures. The company’s goal with these products is to give surgery patients a better outcome while also cutting costs. One of the company’s most popular robotic surgical systems is the da Vinci robotic surgical system, which Intuitive Surgical released in 1999. In 2018 alone, this robotic system was used in over one million procedures. The products the company sells are quite expensive, but Intuitive Surgical claims that these robotic surgical systems can help lower the overall amount that’s spent on healthcare.

Intuitive Surgical is lower risk compared to many other medical technology companies. That’s because 70% of the company’s revenue comes from recurring sources, such as replacements for existing equipment. The more minimally invasive procedures that are performed, the more replacements are needed. Since consumers need procedures regardless of outside events, such as recessions, procedure rates are unlikely to drop drastically. Though no company, or even investment, is without some amount of risk, in a highly volatile industry, Intuitive Surgical does appear to have a solid financial foundation, which is one of its biggest competitive advantages.

Boston Scientific produces and sells medical devices for use in interventional medical specialties. Some of these specialties include interventional radiology, neuromodulation, and cardiac surgery. The three largest segments of Boston Scientific are cardiovascular, rhythm, and neuro. Of these three segments, cardiovascular generates the most revenue for the company.

According to the company’s third quarter earnings report, Boston Scientific saw sales of $2.707 billion in the third quarter of 2019. These earnings were better than expected and show continued growth. Future developments for the company include the release of a new device called WATCHMAN. WATCHMAN is a left atrial appendage closure device that reduces stroke risks, which Boston Scientific hopes to be launching in Japan soon.

Medical Device ETFs

Medical device companies are often incredibly complex. In order to fully understand the implications of different devices, the financial state of the company, and the growth potential of different companies, an investor would need to either have an incredibly wide-ranging amount of knowledge of these financial markets or do an incredibly large amount of research.

But there’s another option--investors can purchase a medical device ETF, which is made up of some of the best medical device companies and managed by knowledgeable analysts. A medical device ETF can be a great way to start investing in device companies in the healthcare sector. Two medical device ETFs that investors may want to consider are the iShares U.S. Medical Devices ETF (IHI) and the SPDR S&P Health Care Equipment ETF (XHE).

Should I Invest in Medical Stocks?

No matter what type of investments interest you, whether it’s the best growth stocks, the biggest stock gainers, dividend stocks, or biotech stocks, there are plenty of options in the healthcare sector. The medical device market is a huge part of the healthcare sector and is predicted to reach $208 billion by 2023. Medical device stocks are likely to see growth since new medical technology will be an important part of the global economy as the world’s population continues to age. As part of a diversified portfolio, medical stocks can be a great option for those looking to invest in the healthcare industry.

Companies Mentioned in This Article

CompanyCurrent
Price
Price
Change
Dividend
Yield
P/E
Ratio
Consensus
Rating
Consensus
Price Target
Zimmer Biomet (ZBH)$148.49+0.6%0.65%19.44Buy$147.60
Danaher (DHR)$148.21+0.7%0.46%32.79Buy$147.57
Baxter International (BAX)$83.35+1.1%1.06%27.33Buy$90.08
Siemens Healthineers (SHL)€43.14-1.5%1.85%27.48Hold€39.49
General Electric (GE)$10.99+1.9%0.36%16.91Hold$10.46
Intuitive Surgical (ISRG)$583.29+0.4%N/A61.46Buy$586.50
Boston Scientific (BSX)$43.67+0.9%N/A29.71Buy$47.19

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