Patiently investing with a long time horizon is one of the most basic yet also one of the most difficult skills to cultivate. In my view, it's a lot easier to be patient with your stocks when they're strong performers right out of the gate as a result of an effective business model and firm fundamentals. But when they aren't soaring immediately you're likely to consider throwing in the towel. Instead, check the business model and fundamentals, if those are solid, your underperforming new stock could be worth the wait with time.
The two healthcare companies I'll be discussing today will probably continue to grow steadily over the next decade, just as they have in recent times. What's more, they're both profitable, and their products are evergreen -- though you'll probably be slightly surprised when you hear what they do to remain so persistently fashionable.
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1. Steris
The world's a dirty place, and keeping the dirt out of pristine areas like operating rooms is more complicated than cleaning your home. Thankfully, Steris (STE -0.68%) makes a cornucopia of sterilization and waste management products ranging from irradiation machines to biohazard waste buckets to disinfectants. These help hospitals keep their tools and key areas as microbe-free as possible. They also serve dentists, biological research laboratories, and drugmakers, all of which require maintenance of high standards of cleanliness.
Since all of its customers have a persistent need for medical-grade cleaning, its business is highly reliable. Nearly 63% of its annual revenue comes from its healthcare segment, and about 80% of the revenue is from recurring sales of consumables and provision of maintenance services for pieces of disinfecting hardware.
For 2021, the company predicts that its total revenue will only grow by up to 11%, but investors shouldn't be worried because this is a stock that's a slow burn. In fact, management holds that the company aims to maintain a long-term trend of high single-digit revenue growth, so 11% is actually a tad faster than normal. As the biopharma sector expands and healthcare facilities continue to sprawl, Steris will have plenty of opportunities for durable growth in the U.S. and also abroad.
And, it doesn't need to invent anything new to keep growing and remain safe from competitors. It's hard to make significant improvements to simple products like biohazard waste bins and cleaning chemicals, and Steris is already exploiting economies of scale to keep costs low.
With such a steady business, paying a dividend to investors is no problem even with a relatively slow rate of revenue growth. Right now, Steris' trailing dividend yield is only 0.78%; raising it every quarter like it's done for at least the last decade is one of management's top priorities. Plus, more share repurchases are likely on the way.
Steris may not be the most exciting stock to buy, and there's no chance of it hitting the moon anytime soon. But, if you're willing to hold on to it for years, it's hard to go wrong with a company whose products are critical and whose execution is consistently good over time.
2. InMode
InMode (INMD -2.49%) makes devices used for minimally invasive aesthetic medical treatments like skin tightening and lipolysis.
Unlike most aesthetic medical devices, the company's hardware uses carefully directed radiofrequency (RF) radiation to erase blemishes and smooth out excess fat. As a competitor to traditional noninvasive beauty treatments delivered via medical lasers, InMode claims that its RF devices are more effective, though it does produce a pair of laser treatment devices as well.
Since going public in late 2019, InMode has remained profitable, and its revenue is consistently growing. As of Q2, its quarterly revenue grew by 184% over last year, and its quarterly earnings before interest, taxes, depreciation, and amortization (EBITDA) exploded by 377% year over year. Due to the pandemic's deleterious impact on people's ability to get elective medical procedures, its income dipped in 2020. Nonetheless, since 2019 its quarterly revenue has increased by upward of 243%, causing its stock to skyrocket by around 2,180% in the same period.
Given the lasting popularity of beauty treatments and plastic surgery, it's fair to say that InMode's target market will be around for a long time. And, because its technologies seem to enable it to provide more comprehensive results than the standard noninvasive methods without being as expensive or invasive as aesthetic surgery, it could steal market share. Plus, a treatment with InMode's devices can cost from $1,000 to $6,000, which means that on average it's a bit cheaper than many of the common types of plastic surgery (which can range from $3,000 to $15,000 depending on body location).
At the same time, its RF technology isn't vulnerable to disruption at the moment because it is a disruptor of the medical aesthetic treatments industry. Assuming that its treatments are cost-competitive with older noninvasive techniques and cheaper than surgery, competitors will be on the back foot.
In the long term, the company's aspirations to unseat both plastic surgery and laser aesthetics treatments could easily be realized, making shareholders richer in the process. In the meantime, investors can look forward to an upcoming stock split and a steadily increasing volume of procedures, driving more earnings and broader adoption of InMode's devices.
