The stock market appears to be gradually recovering from the disaster that was 2022. So far this year, the S&P 500 has gained 16%. While the stock market goes through ups and downs, investing in solid stocks with high growth potential can help to secure one's portfolio in the long run.
The healthcare industry is defensive, which means that regardless of the economic situation, most healthcare products will always be in demand. While elective procedures took a hit during the global pandemic, demand is returning to normal.
Medtronic (MDT 0.62%) and Intuitive Surgical (ISRG 0.59%) are two such healthcare companies that are doing exceptionally well in the medical devices segment. However, one of them has the better potential to make investors wealthy in the long run.
The case for Medtronic
Medical device manufacturer Medtronic has been in the game for a long time and has seen its share of difficulties. Despite the challenges, it has maintained its business stability, as evidenced by its consistent dividend payout and hikes over the last 46 years.
Medtronic assists in the treatment of nearly 70 medical conditions in 150 countries. Its products are classified into four categories: cardiovascular, medical-surgical, neuroscience, and diabetes.
This year, management implemented an "aggressive transformation" strategy to manage short-term headwinds while continuing to drive earnings growth by lowering costs.
The strategy appears to be working as the headwinds decline. Total revenue increased 5.6% year over year to $8.5 billion in the fourth quarter of fiscal 2023 (ended April 28). Earnings per share (EPS) grew by 3% year over year to $1.57. Management attributed this performance to a rebound in procedure volumes, increased supply, and new products.
Medtronic anticipates a strong finish to fiscal 2024 as global demand for elective procedures picks up again. The company has a diverse and innovative portfolio that will drive future growth in the medical devices industry.
Hugo, a robotic-assisted device from Medtronic, has also entered the burgeoning robotic surgery market. According to management, the device is doing well internationally and will soon be launched in U.S. markets.
Medtronic's dividend has increased 146% in the last decade. In the most recent quarter, the company increased its dividend to $0.69 per share, up from $0.68 previously. This was the company's 46th dividend increase. Medtronic's dividend yield is 3.1%, which is significantly higher than the S&P 500's average dividend yield of 1.7%.
The case for Intuitive Surgical
Intuitive is not as old as Medtronic in the game, but it has accomplished a lot in its 28 years of existence. Its cutting-edge da Vinci Surgical Systems have helped it establish a strong presence in the minimally invasive surgery (MIS) market.
With an aging global population, demand for minimally invasive surgery is resuming after a brief hiatus during the pandemic. MIS is gentler on patients and results in shorter recovery times. Intuitive's da Vinci system allows surgeons to see the operating field in 3D while using tiny, machine-manipulated instruments for smooth precision.
Because of these effective surgeries, Intuitive's global number of da Vinci procedures performed has grown by an astounding 82% between 2017 and 2021. The number of Intuitive systems installed worldwide has also increased from 4,409 at the end of 2017 to 7,779 as of March 31.
The company not only sells but also leases these systems. The company placed 312 systems and leased 131 globally in the first quarter alone. Management anticipates that the number of installed systems will continue to grow.
Intuitive earns recurring revenue from the disposable surgical instruments and accessories used by these machines, which accounts for 70% of total sales. Instruments and accessories revenue increased 22% year over year to $986 million in the most recent reported quarter. Overall revenue for the quarter rose 14% year over year to $1.7 billion. Its adjusted net income surged to $437 million from $413 million in the year-ago quarter.
Not only is Intuitive experiencing tremendous revenue and profit growth, but the company also has a strong balance sheet to fund future expansion. It had $6.6 billion in cash, cash equivalents, and investments at the end of the quarter.
MDT Revenue (Annual) data by YCharts.
The better choice
While Medtronic is an excellent choice for both growth and income investors, if I had to pick one, for now, it would be Intuitive Surgical. Intuitive has a commanding 80% market share in the robotic surgery market and is expected to lead at least through 2031, thanks to its early-mover advantage.
The global robotics market is expected to grow at a compound annual rate of 10% over the next several years, reaching $17 billion by 2031, according to experts. Having an economic moat gives Intuitive a significant competitive advantage, especially given the industry's rapid growth.
Despite an increasing presence of Medtronic and other companies in the robotic surgery market, it will be difficult to compete with Intuitive. Hospitals spend a lot of money -- from $500,000 to $2.5 million -- buying the systems as well as training surgeons to use them. Intuitive's da Vinci is a tried-and-tested product. Even if a less expensive alternative emerges, hospitals are unlikely to make the switch.
The chart above depicts Intuitive's revenue and EPS (earnings per share) rapidly increasing over the last 10 years. Its stock has gone up by 480% over the last decade, outperforming the S&P 500. Of course, past performance does not guarantee future results. However, given the industry's potential and Intuitive's dominant position, the company looks well-positioned to continue that trend.
