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Want to Get Rich Investing in Healthcare? Check Out These Diabetes Stocks

By Keith Speights - Feb 21, 2020 at 7:31AM

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The worst performer among these stocks has soared more than 70% over the last 12 months.

The healthcare sector hasn't been a big winner for investors over the last 12 months. Shares of the largest healthcare-focused exchange-traded fund (ETF), Health Care Select SPDR ETF, are lagging well behind the performance of the S&P 500.

But not all areas within the healthcare sector are performing poorly. Three diabetes stocks in particular continue to be sizzling hot. If you want to get rich investing in healthcare, you definitely need to check out DexCom (DXCM -1.22%), Insulet (PODD -1.80%), and Tandem Diabetes Care (TNDM -1.66%).

Doctor with stethoscope around neck holding a marker after writing the word "diabetes"

Image source: Getty Images.

1. DexCom

Shares of DexCom have more than doubled over the last 12 months. The key reason for the stock's fantastic performance is fast-growing sales of the company's G6 continuous glucose monitoring (CGM) system.

DexCom's latest quarterly results show just how successful the company's G6 CGM is right now. The company's revenue jumped 37% year over year in Q4 2019 to $462.8 million, well above the consensus Wall Street estimate. This strong revenue growth helped DexCom to also trounce analysts' fourth-quarter earnings estimate.

The company benefited from its launch of the G6 into the U.S. Medicare market. It expanded its global operations. DexCom also partnered with major healthcare organizations like UnitedHealth Group to increase the use of its CGM system by individuals with type 2 diabetes.

2. Insulet

If you liked DexCom's big gains, you'll love Insulet's performance. The stock has skyrocketed more than 140% over the past 12 months, powered by rapidly growing demand for its OmniPod insulin pumps for individuals with Type 1 or Type 2 diabetes who require insulin.

Insulet won't report its fourth-quarter results until next week, but the company's Q3 update in November underscored the tremendous momentum for OmniPod. Sales for the insulin pump jumped 34% year over year to $177.2 million, accounting for over 92% of the company's total revenue.

OmniPod is much more convenient than traditional insulin shots, with one "pod" replacing up to 14 injections each day. It's also differentiated from other leading insulin pumps because it's tubeless, waterproof, and easily hidden beneath clothing.

3. Tandem Diabetes Care

Insulet isn't the only insulin pump maker that's on a roll. Shares of Tandem Diabetes Care are up more than 70% over the past 12 months, thanks primarily to continued success for the company's t:slim X2 insulin pumps.

Like Insulet, Tandem is scheduled to report its fourth-quarter results next week. It seems likely that the company will continue its momentum from Q3, when it announced that its revenue more than doubled from the prior-year period to $94.7 million, with especially strong growth in international markets.

Tandem's strategy has been to focus heavily on introducing innovative new products based on its core t:slim platform. The company has launched six new insulin pump versions over the last six years. Tandem's slogan for t:slim X2 -- "the pump that gets updated, not outdated" -- highlights one of its competitive advantages. In addition, t:slim X2 is smaller than other leading insulin pumps and already integrates with DexCom's CGM systems. 

Why these diabetes stocks could get even hotter

Investing in healthcare stocks that focus on diabetes should be a winning strategy for the future based on demographic trends alone. There are around 463 million people across the world with diabetes -- and that number is growing. Only around 6% of individuals with diabetes don't develop complications. This creates a massive opportunity for medical devices that help effectively manage diabetes. 

All three of the diabetes stocks mentioned have catalysts on the way that should enable them to succeed in 2020 and beyond. DexCom is launching the G6 CGM in more international markets and plans to conduct the biggest product launch in its history on a full scale in 2021 with its new G7 CGM system. Insulet recently announced plans to integrate with DexCom's G6 and G7, as well as Abbott Labs' popular Freestyle Libre CGM. Tandem just launched its latest version of the t:slim X2 insulin pump, which is the first system to deliver automatic correction boluses of insulin and adjust insulin levels to keep blood sugar levels within thresholds. 

There's no guarantee that you'll get rich investing in DexCom, Insulet, and Tandem. But these three diabetes stocks appear to be on a track to continue generating strong gains for long-term investors.

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Stocks Mentioned

DexCom, Inc. Stock Quote
DexCom, Inc.
DXCM
$74.53 (-1.22%) $0.92
Insulet Corporation Stock Quote
Insulet Corporation
PODD
$217.94 (-1.80%) $-4.00
Tandem Diabetes Care Stock Quote
Tandem Diabetes Care
TNDM
$59.19 (-1.66%) $-1.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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