With a global medical device market size of more than $500 billion, it's not surprising that many investors are interested in medical device stocks. And with that market expected to grow to almost $800 billion by 2030, investor interest will almost certainly intensify.
In this article, we'll address exactly what medical device stocks are and identify some of the best stocks to buy. We'll also identify some of the top medical device exchange-traded funds (ETFs).
What are medical device stocks?
What are medical device stocks?
Medical device stocks are shares of companies that make and sell medical devices. Medical devices include any appliance, instrument, or machine used to diagnose, treat, or prevent a disease or condition. Software, implants, or chemical reagents used for those purposes are also considered medical devices.
If you think that's a broadly defined category, you're right. The World Health Organization estimates that there are roughly 2 million different kinds of medical devices marketed today.
The best medical device stocks in 2024
The best medical device stocks in 2024
There are many great medical device stocks for investors to consider. Five of the best picks right now are Abbott Laboratories (ABT -0.03%), InMode (INMD -1.96%), Intuitive Surgical (ISRG -0.5%), Johnson & Johnson (JNJ -1.15%), and Outset Medical (OM -6.67%).
1. Abbott Laboratories
1. Abbott Laboratories
Abbott Laboratories is a large-cap company that makes medical devices, including continuous glucose monitoring (CGM) systems, defibrillators, heart failure monitoring systems, mechanical heart valves, pacemakers, and spinal cord stimulators. It also operates multibillion-dollar business segments that market established pharmaceuticals, diagnostics systems, and nutritional products.
The COVID-19 pandemic provided a huge boost to Abbott’s fortunes, thanks to the company’s rapid diagnostic tests. Although the company’s overall revenue is declining as the demand for the tests wanes, Abbott’s base business remains strong.
In particular, Abbott’s FreeStyle Libre stands out as a key growth driver. It’s the top-selling CGM device in the world, with sales skyrocketing in the U.S. market.
Income investors could especially find Abbott attractive. It’s a Dividend King with 51 consecutive years of dividend increases.
2. InMode
2. InMode
InMode is an Israel-based mid-cap company that markets surgical devices that harness radio frequency (RF) technology. Its product lineup includes RF devices that are used in minimally invasive procedures for plastic surgery, gynecology, dermatology, and eye disorders, as well as ear, nose, and throat disorders.
Much of InMode’s success stems from the use of its devices in medical aesthetics. More than 200,000 physicians worldwide have been trained on its products, with more than half in the U.S.
InMode’s sales continue to enjoy robust growth. In particular, recurring revenue from consumables and services are increasing rapidly and make up almost 20% of the company’s total revenue.
The global medical aesthetics market is projected to top $26 billion by 2030, more than doubling its size in 2022. This could give InMode exceptional growth potential over the next several years.
3. Intuitive Surgical
3. Intuitive Surgical
Intuitive Surgical is a large-cap company that pioneered the development of minimally invasive robotic surgical systems. The company launched its flagship da Vinci surgical system in 1999. Da Vinci was first approved for use in general laparoscopic surgery but today is used in a wide range of procedures.
More than 12 million procedures have been performed using da Vinci systems, with more than 1.8 million of those procedures done in 2022. Almost 8,000 da Vinci systems are installed in hospitals across the world.
Aside from a temporary slowdown during the COVID-19 pandemic, Intuitive Surgical’s procedure volumes have grown steadily in recent years, boosting the company’s recurring revenue from selling replacement instruments. In 2022, recurring revenue made up almost 80% of Intuitive’s total revenue.
Aging trends should help Intuitive Surgical by driving increased demand for surgical procedures. The company also continues to enhance its robotic surgical systems so that they can be used for additional types of procedures.
4. Johnson and Johnson
4. Johnson & Johnson
Johnson & Johnson is a large-cap company that ranks as one of the biggest medical device makers in the world. It markets medical devices that include catheters, implants, robotic surgical systems, surgical instruments, and wound closure products. J&J also is a top maker of prescription drugs.
Acquisitions have played a big role in helping Johnson & Johnson grow its medical device business. In recent years, the healthcare giant has acquired several medtech companies, including Abiomed and Verb Surgical.
Johnson & Johnson spun off its consumer health unit into a separate publicly traded entity, KenVue (KVUE -0.57%), in May 2023. The move could enable the company to deliver even stronger growth.
The stock remains a favorite for income investors, too. J&J has increased its dividend for an impressive 61 consecutive years, making it one of the top Dividend Kings on the market.
5. Outset Medical
5. Outset Medical
Outset Medical is a small-cap company that markets hemodialysis systems for the U.S. acute care and home markets. The company’s Tablo system was first cleared by the U.S. Food and Drug Administration (FDA) for use in acute or chronic care facilities in 2014. The FDA cleared the system for home use in 2020.
Tablo helps hospitals reduce supply costs associated with dialysate bags (which hold fluids used in kidney dialysis) by creating dialysate on demand. The system also addresses multiple challenges that previous home dialysis devices faced. It requires fewer treatments per week. It eliminates the dialysate preparation time. And the training for Tablo can be done in less than one-fourth of the time that older systems require.
The U.S. acute care dialysis market is around $2.5 billion, while the home market stands at $8.9 billion. Outset’s addressable market should continue to grow significantly, with a projected 30% increase in dialysis patients by 2030.
In the past, cumbersome technology and inadequate reimbursement presented major barriers to home dialysis. Now, however, Outset’s Tablo overcomes the technology issues of the past. Medicare is also offering new financial incentives for the adoption of home dialysis.
Medical device ETFs
Medical device ETFs
For investors who want to buy a basket of medical device stocks, there are several medical device ETFs to consider, including iShares U.S. Medical Devices ETF (IHI -0.67%), SPDR S&P Health Care Equipment ETF (XHE -1.76%), and First Trust Indxx Medical Devices ETF (NYSEMKT:MDEV.
1. iShares U.S. Medical Devices ETF
1. iShares U.S. Medical Devices ETF
The iShares U.S. Medical Devices ETF is operated by BlackRock (BLK -0.68%). This ETF invests only in U.S. medical device companies. The fund’s annual expense ratio is 0.39%.
IHI currently owns positions in 61 stocks. Its top holdings include Thermo Fisher Scientific (TMO -0.98%), Abbott Laboratories, Medtronic (MDT -1.41%), Intuitive Surgical, and Edwards Lifesciences (EW -0.68%).
2. SPDR S&P Health Care Equipment ETF
2. SPDR S&P Health Care Equipment ETF
The SPDR S&P Health Care Equipment ETF is operated by State Street (STT -1.35%). It invests in healthcare equipment and healthcare supplies companies, a group that includes many medical device companies. The ETF’s annual expense ratio is 0.35%.
XHE currently owns positions in 74 stocks. Its top holdings include UFP Technologies (UFPT -2.21%), Shockwave Medical (SWAV 0.04%), Conmed (CNMD -11.58%), Glaukos (GKOS -0.81%), and Intuitive Surgical.
3. First Trust Indxx Medical Devices ETF
3. First Trust Indxx Medical Devices ETF
The First Trust Indxx Medical Devices ETF is operated by First Trust Portfolios. This ETF invests in medical device companies based in both the U.S. and other countries. Its annual expense ratio is 0.70%.
MDEV currently owns positions in 50 stocks. Its top holdings include Exact Sciences (EXAS -7.04%), Intuitive Surgical, Penumbra (PEN -0.32%), Koninklijke Philips (PHG -1.19%), and Hoya (HOCPF -1.41%).
Related investing topics
Should you invest in medical device companies?
Should you invest in medical device companies?
As is the case with most investing questions, the best answer about whether or not you should invest in medical device companies is: It depends. Every investor has different goals, risk tolerances, and time horizons.
Medical device stocks can sink during economic downturns as healthcare providers curtail their spending. They also face volatility related to government and private payer reimbursement decisions. Investors with short time horizons and/or low risk tolerance levels should especially take these factors into consideration.
However, the long-term prospects for the medical device industry generally appear to be very good. Aging demographics and technological innovations should provide nice tailwinds for the medical device sector. For long-term investors who don’t mind the potential for volatility, medical device stocks should provide an attractive opportunity.
