Coming into 2020, stocks were riding the wave of one of the longest bull markets in history. But the economic fallout of the COVID-19 pandemic brought that streak to a close. The market fell sharply in early 2020 as recorded cases of the disease grew in the U.S. and abroad, although it recovered nicely during the second half of the year. 

The S&P 500 was up 16.3% last year, a respectable performance considering the volatility. However, some stocks managed to perform much better than that. For instance, shares of Tandem Diabetes Care (NASDAQ:TNDM) rose by 60.5% in 2020, while DexCom's (NASDAQ:DXCM) stock gained 69% in the same period. These two healthcare companies have something else in common: They develop and market products that help diabetes patients manage their illnesses. 

This market is already quite large: Roughly 34.2 million Americans have diabetes, and 88 million more have prediabetes. And studies indicate that these numbers will continue to increase. Companies that help people manage this disease are likely to remain in high demand.

Tandem Diabetes Care and DexCom are both well positioned to make a mark in this space. Read on to find out why both would be excellent additions to your portfolio.

1. DexCom

One of the most critical aspects of managing diabetes is monitoring blood sugar levels, and patients have several options available. One such option is a blood glucose meter (BGM) that uses fingersticks. This method does have significant drawbacks, however. First, fingersticks are somewhat painful, and second, BGMs can only measure blood sugar levels at a particular point in time. 

Another method is known as continuous glucose monitoring (CGM). CGM systems are small devices that continually keep track of a person's blood glucose level, often using a sensor inserted into the skin. While fingersticks may still be needed to calibrate the device properly, CGMs reduce the frequency at which a patient uses them. Indeed, DexCom's G6 CGM System eliminates the need for fingersticks altogether, and in a survey of G6 users, 84% said the initial sensor insertion was painless.

In other words, the G6 CGM System presents significant advantages over the first method. This factor has helped DexCom perform well. During the nine-month period ending Sept. 30, the company's revenue jumped by 34% year over year to $1.4 billion. Management attributed this growth to an increased "awareness of real-time CGM."

Doctor writing the word Diabetes with a marker.

Image source: Getty Images.

It is worth noting that DexCom is working on a successor to the G6, appropriately named the G7. This new, thinner model will bring significant reductions in manufacturing costs. The G7 is currently undergoing clinical trials, and it should be launching in key markets during the second half of the year.

Speaking of which, DexCom's core markets are North America, Australia, and a few other developed counties. The company estimates that this total population is comprised of roughly 10 million potential customers and remains underpenetrated -- and that's to say nothing of the opportunities that lie beyond. In such a landscape, DexCom will likely continue to grow its revenue and earnings, and its stock price will follow suit. Putting money into this healthcare stock right now would be a great move.

2. Tandem Diabetes Care

Tandem Diabetes develops insulin pumps and accessories. The company's crown jewel is the t:slim X2 insulin pump, which works in tandem with DexCom's G6 to continuously monitor blood glucose levels and uses an automated delivery system to maintain a patient's blood sugar level within a pre-defined range. This helps reduce hypoglycemia, a dangerous condition for those with diabetes. It's not surprising, then, that consumers have flocked to Tandem Diabetes' innovative product, as evidenced by the company's revenue growth. The chart below shows the healthcare company's quarterly top-line growth for the past three years.

TNDM Revenue (Quarterly) Chart

TNDM Revenue (Quarterly) data by YCharts

Can Tandem Diabetes maintain this momentum? Yes, it can, and here is why. Just like DexCom, the company has a massive untapped market opportunity ahead of it. In the U.S., most diabetes patients still rely on multiple daily injections rather than insulin pumps, even though the latter method is less painful and less prone to human errors.

The opportunity abroad is even larger for Tandem Diabetes, since the proportion of patients with diabetes who use innovative pumps like the t:slim X2 is even smaller outside the U.S. Tandem Diabetes plans on having 500,000 customers by the end of 2024, up from 190,000 as of its third quarter of 2020, which ended Sept. 30. Analysts estimate that the company will keep growing its revenue at an annual rate of 53.2% throughout the next five years.

What's more, the company isn't resting on its laurels, with several products currently in development to better assist diabetes patients. These factors will help the healthcare company maintain the momentum it had last year, and those who buy its shares will be glad they did so down the road.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.