Better Bear Market Buy: DexCom vs. Intuitive Surgical

Key Points

DexCom's recent product launches should boost the company's revenue and earnings.

Intuitive Surgical's strong recurring revenue makes it attractive.

Both stocks are valued at a premium, but Intuitive appears to be the better bang for the buck.

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Both of these disruptive healthcare companies could be big winners over the long term.

DexCom (DXCM 0.10%) and Intuitive Surgical (ISRG -0.50%) without question rank as two of the most disruptive companies in healthcare. Both stocks have been big winners, with DexCom delivering the greatest gains in recent years. But which stock is the better pick for the current bear market?

A leader in diabetes management

Adria Cimino (DexCom): DexCom is a leader in the continuous glucose monitoring (CGM) space. It makes devices that allow people with diabetes to steadily track their blood sugar levels. The company hasn't had much luck when it comes to share performance this year. The stock has lost 40%. But the silver lining in this dark cloud is that the stock looks like a bargain considering today's growth -- and what's ahead.

DexCom today is trading at 98 times forward earnings estimates. That's down from more than 150 just a few months ago.

Here's why this looks like a bargain. First, DexCom has grown annual revenue and profit over the past couple of years -- and revenue has reached into the billions. In the first quarter alone, revenue climbed 25% to more than $628 million.

Today's price also looks good due to recent product launches. DexCom scored clearance for an updated version of its CGM device in Europe. And it's started to release that product -- the G7. The company still is in talks with U.S. regulators and hopes for G7 clearance here soon.

DexCom also recently launched the DexCom One in the U.K. and Spain. This is a lower-cost monitoring system, which should broaden DexCom's audience. A wider range of patients may choose DexCom over rivals. These products are likely to equal more revenue growth for DexCom.

Why is DexCom a good bear market buy? People with diabetes must monitor their illness -- whether the economy is weak or strong. So, I wouldn't expect DexCom's earnings to suffer during times of economic turmoil. And, considering the stock price and recent product launches, DexCom's long-term outlook seems bright.

Surgeries don't stop in bear markets

Keith Speights (Intuitive Surgical): Intuitive Surgical ranks as the undisputed leader in robotic surgical systems. The company has a market share of close to 80% with an install base of 6,920 systems across the world.

Intuitive Surgical has generated impressive returns over the past 20-plus years. However, its recent performance hasn't been so hot. The stock has been hit hard by the market downturn and COVID-19 concerns.

But surgeries don't stop in bear markets. Hospitals should continue using Intuitive's robotic systems in a wide range of surgical procedures. Around 75% of the company's total revenue is recurring (largely stemming from replacement instruments and accessories). This gives Intuitive a cushion that most companies don't have.

It's possible that another COVID-19 surge could weigh on Intuitive's business. Even if that happens, though, the impact on Intuitive Surgical would only be temporary. Hospitals might delay elective procedures with increased worries about COVID-19, but that would just shift the procedures into the future a bit.

Over the long term, Intuitive is poised to benefit from the aging of populations across the world with older patients typically requiring more surgeries. The company's continual innovation should also open up tremendous new opportunities for the use of robotic surgical systems.