The S&P 500 index is down more than 24% so far this year. While medical stocks are seen as more recession-proof than many other sectors, they haven't been immune to the market's decline. The healthcare sector is down more than 15% this year, while medical equipment stocks have been hit even harder, with the SPDR S&P Health Care Equipment ETF down more than 27%.
Two medical device companies bucking that trend are ShockWave Medical (SWAV) and Cardinal Health (CAH -0.61%), which are up more than 58% and 30% this year, respectively. ShockWave, founded in 2009, is a relatively new company, and Cardinal has been in business for more than 50 years, but both are seeing share growth backed up by their own strong financial fundamentals.
Sending shockwaves through the industry
ShockWave Medical focuses on medical products to treat calcified cardiovascular disease. The company's devices use intravascular lithotripsy (IVL), basically sonic pressure waves, to break up calcium deposits in arteries, and can make it easier for stents to be inserted and be effective. The application of the technology to treat clogged arteries is new, but IVL has been used for more than 30 years to break up kidney stones.
One of the big advantages to IVL over other conventional methods, such as balloon angioplasty or atherectomy (surgically shaving plaque in arteries), is it does not harm soft tissue, ShockWave said. The company has separate peripheral, coronary, and valve IVL products. ShockWave's Disrupt PAD III trial reported in May that ShockWave IVL was superior to angioplasty in treating calcified peripheral disease while preserving future treatment options.
The company's stock is up more than 58% so far this year. It has seen huge revenue gains, with a five-year compound annual growth rate (CAGR) of 244%.
ShockWave reported second-quarter revenue of $120.7 million, up 116% year over year, led by the launch of ShockWave C, its new coronary product, in February in the United States, and increased sales all around. The company had an impressive gross margin of 86% and reported net income of $25.6 million, or $0.68 in earnings per share (EPS), up from a loss of $0.4 million and an EPS loss of $0.38 in the same period last year.
ShockWave, which went public via a 2019 initial public offering, said it expects full-year revenue to range from $465 million and $475 million, which would mean between 96% and 100% growth over 2021 revenue. It sees strong potential growth in China, as its IVL technology was just approved for use there in May.
Cardinal Health is big and balanced
Cardinal Health is a huge company, with 44,000 employees, that distributes pharmaceuticals, makes medical and laboratory products, and provides performance and data solutions to healthcare facilities.
The company operates in two segments, Pharmaceutical and Medical, which give it economic diversity. Pharmaceutical distributes branded and generic drugs and consumer products, while the Medical segment includes the company's branded medical, surgical, and laboratory products.
Cardinal's stock is up more than 29% this year. The stability of the company, as well as its dividend, have attracted investors. It is ubiquitous in U.S. healthcare, serving more than 90% of hospitals, but also operates in 35 countries.
Cardinal is a Dividend Aristocrat that raised its quarterly dividend for 36 consecutive years, including a 1% boost this year to $0.4957, giving it a yield of around 2.94%. Cardinal has a cash dividend payout ratio of only 20.44%, so there's plenty of room for continued dividend increases.
The company reported its 2022 fourth-quarter earnings on Aug. 11 and listed revenue of $47.1 billion, up 11% year over year. Despite a goodwill impairment charge of $303 million, it still came out in the black with $138 million in net income, or $0.50 in EPS, up from $116 million and $0.40 EPS in the same period in 2021. As with many companies, Cardinal is grappling with supply and inflation issues, especially in its medical segment, but still increased annual revenue for the eighth consecutive year.
Different choices for different investors
ShockWave has a greater potential for growth, but as a newer company, there's a little less stability in its business. Cardinal is more likely to see incremental growth, but its dividend and its regular stock buybacks can make it attractive to value investors.
In the long term, I see more potential for ShockWave, as it is changing the industry, while Cardinal is a good long-term bet but an even better short-term investment as the company seems to be rebounding well from supply change and inflationary pressures.
