From medical devices to life-saving medicines and treatments, there's a simple reason why healthcare companies perform well against a wide range of economic backdrops and market environments. The products and services these companies provide typically remain in demand, irrespective of the macroeconomic forces driving markets.
Not only are the best healthcare stocks known for their steady growth in a variety of markets, but these businesses can present a tempting buying proposition for long-term investors. If you're looking to add more healthcare stocks to your buy basket this month, here are two no-brainer choices to consider when you do.
1. Intuitive Surgical
Intuitive Surgical (ISRG -0.50%) has amassed a behemoth presence in the surgical robotics market since its flagship product, the da Vinci surgical suite -- the first surgical robotics system ever to be approved for general laparoscopic surgery by the U.S. Food and Drug Administration (FDA) -- entered the market over 20 years ago. Since that time, the market opportunity for surgical robotics has exploded, and Intuitive Surgical's early formidable presence in this space has only grown.
Currently, Intuitive Surgical controls approximately 80% of this multi-billion-dollar global market. According to market research firm MarketsandMarkets, the global surgical robotics market value hit $8.5 billion in 2022. However, this space is on track to witness monumental growth and more than double that valuation to $18 billion by the year 2027. The benefits of surgical robotics systems, which can include everything from better recovery outcomes for patients to better precision during surgery, and broader usage by medical providers, are just a few catalysts expected to drive this industry's growth story.
Intuitive Surgical has seen a slowdown in procedure volumes in recent quarters, not because customers aren't buying and installing its systems, but due to COVID-19 resurgences in some of its key markets over the past year. While it's reasonable to expect these issues will resolve, it may take a few more quarters before these headwinds truly abate. Even so, when you're looking at an investment in this company for anywhere from three to five years, a headwind of this nature that isn't tied to an issue with the actual business itself needn't keep you on the sidelines.
Intuitive Surgical grew its total revenue 9% in 2022 to $6.2 billion while generating net income of $1.3 billion in the 12-month period. The company closed out the year with cash and investments just shy of $7 billion on its balance sheet. Although it placed 16 fewer systems in the final quarter of 2022 than it did in the year-ago period, it still closed out the year with 7,544 systems installed worldwide, an increase of 12% from its installed base of systems at the end of 2021.
If you're looking for a profitable healthcare business with a wide moat and plenty of room left to grow despite its vast market footprint in the years ahead, Intuitive Surgical looks like a no-brainer buy to add to your basket of stocks and hold for the long haul.
2. DexCom
DexCom (DXCM 0.10%) is a leader in diabetes care, known for its continuous glucose monitors (CGM) that are the most covered and reimbursed in the industry. In fact, the company recently announced that its new G7 CGM, which just received FDA approval in December 2022, will be available to Medicare beneficiaries upon its official launch on Feb. 17. The G7 is already being launched outside the U.S. in markets, including the U.K. and across Europe.
The expansion of coverage for these systems is a key catalyst to continued CGM adoption by the diabetic patient population. In the company's 2022 earnings call, CEO Kevin Sayer gave another positive update as to potential coverage expansion by the Centers for Medicare & Medicaid Services (CMS), specifically for the type 2 diabetes patient population.
Before I get into those comments, let me explain why it matters. Approximately 95% of the roughly 40 million diabetics in the U.S. have type 2 diabetes. Despite this fact, the type 2 diabetes population remains highly underpenetrated, with only an estimated 4% of people in this group wearing CGMs.
In the earnings call, Sayer noted that "in October, CMS published a proposed local coverage determination that would meaningfully expand access to CGM technology for the Medicare population. This proposal would broaden coverage to include people with type 2 diabetes using basal insulin only, as well as certain non-insulin-using individuals that experience hypoglycemia."
He added that management is anticipating "the ruling to be finalized in the coming months...Between this Medicare ruling and broader commercial coverage, which we expect to follow shortly, this population has the potential to nearly double our addressable reimbursed market in the United States."
DexCom closed out 2022 with 1.7 million people using its CGMs globally, an increase of 450,000 compared to the end of 2021. The company is growing revenue steadily and remains profitable, while currently controlling about 40% of the global continuous glucose monitoring device market. The expansion of both public and private coverage options, and that there are notable swaths of DexCom's addressable market that remain broadly untapped, bode extremely well for this healthcare company's ability to glean new sources of growth from its dominant market share position in the years ahead.
