Sometimes, the stocks most investors have never heard of offer the greatest upside potential. In this Motley Fool Live video, recorded on Jan. 5, Motley Fool contributors Keith Speights and Brian Orelli discuss an under-the-radar healthcare stock that could be a big winner for long-term investors.

Keith Speights: Now, in our last program in 2021, you mentioned a company by the name of Outset Medical (NASDAQ:OM), ticker there is OM. You said that Outset Medical was one of the top healthcare stocks on your watch list for the new year. We didn't get deep into Outset Medical at the time then, but, Brian, can you maybe give a little bit more information about why this stock could be a big winner over the long term?

Brian Orelli: Yeah. So the company sells Tablo portable dialysis systems. The dialysis machines have historically used purified water. So they have to be hooked up in a special room that also has a large purification system. Portable ones require the dialysate, which is used to clean the blood, to be made up ahead of time.

So Outset Medical's Tablo solves both of these problems. It incorporate a water purification so you can hook it up to the city water line and then it makes the dialysis on the dialysate on demand. So that makes it very easy to use compared to the other portable machines.

Initially, the company has gone after the low-hanging fruit of the acute care. So many patients crash into dialysis, so that means they just show up at the hospital with kidney failure. The other ones, the doctor sort of realizes that kidneys are failing and then they can get into the normal routine of going to dialysis center. But a lot of patients just show up at the hospital and those patients need to be stabilized in the hospital. Unfortunately, there's no way for hospitals to build specifically for inpatient dialysis. So hospitals often lose money on patients who require dialysis.

The Tablo offers an easy and cheap way for patients to get dialysis at the bedside by just bringing in a machine, hooking it up to the water line in the patient's room, and then it's really simple for the nurses to run the machine. The payback on the system is basically less than a year in the savings. When you factor in the savings that they are getting versus having to either transport the patients to a dialysis center or the other options of trying to do it within the hospital. This is basically a no-brainer for hospitals.

The acute care market is $2.2 billion, at least that's what the company thinks it is, and Outset Medical has a trailing-12-month revenue of just over $90 million. So there's plenty of growth left there and it's also moving into the home dialysis market. Only 2% of patients get dialysis at home, but a lot more are actually eligible and quite a few patients want to get it.

The problem has been just they need a simple machine that they or their caregivers can run. The Tablo seems to fit that bill pretty well. The market for home dialysis is approaching $9 billion. That's a lot of upside.

I think that probably the biggest weakness of the company is just execution. They obviously have a big growth runway ahead of them. But they had really high cost of goods, those have come down. They've set up manufacturing in Mexico, and that seems to have helped the situation. But that's why it's on my watch list and not in my portfolio yet as I just like to see a little more execution on bringing the cost of goods down and ramping up manufacturing. That would make me more confident enough to buy the stock.

Speights: I was just looking, Brian, Outset Medical's market cap right now is just around $2 billion. You mentioned a $2.2 billion market opportunity in the acute market, then another $9 billion or so in the home dialysis market. That's a total market opportunity of over $11 billion for a stock that's worth $2 billion now, so intriguing possibility there. That's one I'm going to put on my list after hearing you talk about it. It's not a stock that I was familiar with before.

Orelli: Yeah. It's an interesting, you know. I think they have a big market opportunity here.

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.