With market capitalizations ranging from $3.6 billion to $7.2 billion, these four mid-cap stocks offer multi-bagger potential.Doximity (DOCS 0.97%) and Progyny (PGNY -1.42%) are home to first-mover advantages -- giving them a head start over their competition. Meanwhile, Medpace (MEDP 1.58%) and InMode (INMD 0.70%) look to beat the market with their best-in-class profitability. All are driven by decades-long megatrends working in their favor.
Let's explore why these healthcare businesses are prime selections to buy in July and hold forever.
1. Doximity
Home to over 80% of doctors and over 50% of nurse practitioners and physician assistants in the U.S., Doximity's physician cloud has quickly drawn the attention of the largest companies in its industry. Counting the top 20 hospitals and top 20 pharmaceutical companies as customers, Doximity's platform has rapidly become a staple within the healthcare industry.
While it was initially known as the "LinkedIn for doctors," CEO Jeffrey Tangney believes it to be more like a "Bloomberg for physicians" these days thanks to its telehealth solutions. Whether making video calls with patients, sending faxes from a phone, electronically signing documents, or setting work schedules, Doximity's platform has become a workflow must-have for most doctors.
Through these daily interactions with its app -- not to mention its newsfeed and networking features -- Doximity's platform became an obvious target for pharmaceutical and hospital advertising. Providing a compelling digital advertising alternative to linear TV's gradual decline, Doximity saw its sales and free cash flow (FCF) explode, recording annualized growth rates of 49% and 87%, respectively, since 2019.
Despite this incredible growth, the company's stock has stumbled since its initial public offering (IPO). Trading at 39 times FCF, the shares look much more reasonably priced, considering analysts expect 20% sales growth over the next year. Best yet, Doximity accounts for only 4% of ad spending among the U.S.'s 430 largest Rx brands, leaving a long runway for growth and making today's price a top buying opportunity for buy-and-hold forever investors.
2. Progyny
According to the World Health Organization, 1 in 6 people of reproductive age across the globe faces challenges with infertility. This figure is even more alarming as it was one in eight people just four years ago.
As troubling as these statistics are, one might argue that Progyny and its suite of fertility services could become one of the most important businesses in the healthcare space. By delivering superior fertility outcomes across the board compared to its peers, Progyny's family-building solutions are quickly becoming a must-have for businesses looking to keep employees and their families happy and healthy.
Through the company's Smart Cycle plan design, members can access Progyny's network of fertility specialists, including a dedicated patient care advocate, to help with any of the logistics or pain points involved along the way. In addition to these individually tailored benefits, the company offers a prescription benefits solution to provide any needed medications.
Withe the company earning a fantastic Net Promoter Score (NPS) of 81, it is easy to see the value provided to its 5.4 million members. Rated on a scale of -100 to 100, a positive NPS score means most customers would recommend a product to a friend -- making Progyny's figures astonishing.
Guiding for 33% revenue growth in 2023 and counting only about 3% of companies in the U.S. with more than 1,000 employees as clients, Progyny's first-mover advantage has ample room to run over the long haul.
3. Medpace
As a leading clinical contract research organization (CRO), Medpace guides biotech, pharmaceutical, and medical device companies through the four phases of clinical trials. Acting as a one-stop-shop, the company takes a full-service approach to helping its customers, which are generally small to midsize biopharmaceuticals.
Accounting for 96% of sales, these tiny customers make Medpace a picks-and-shovels investment in the biopharma industry. Individually, each of its customers is inherently risky due to the pass-or-fail nature of clinical trials. However, combined, they act as a stable portfolio of customers for the company.
Thanks to this approach, Medpace can grow alongside its more successful customers and the broader biotech industry over time, which is expected to double in size by 2030. Powered by a net profit margin of 16% and even stronger FCF generation, Medpace's management is armed with a war chest to buy back shares with at opportune times -- such as the chart below highlights.
MEDP data by YCharts. PE Ratio = price-to-earnings ratio.
Notice that as soon as the company's stock price and price-to-earnings (P/E) ratio dipped in early 2022, management swooped in to buy back over 10% of the total shares outstanding at a discount. Thanks not only to shrewd tactics like this but also the company's industry-leading profitability and its naturally diversified exposure to the steadily growing biotech industry, Medpace's 700% increase in price since its IPO shows no sign of slowing.
4. InMode
Using its patented radio-frequency energy technologies, InMode's products address three treatment categories: face and body contouring, medical aesthetics, and women's health. Home to 10 product platforms, InMode helps its customers remodel tissue and fat, shrink and tighten skin, and reduce cellulite and wrinkles while avoiding the overwhelming proposition of plastic surgery.
Employing a razor-and-blade business model, InMode has 17,000 product platforms installed globally, each requiring consumables and services as they are used. Growing sales and earnings per share (EPS) by 24% and 31%, respectively, in the first quarter of 2023, the company continued its high-growth march forward. Best yet, its consumables sales grew by 43% during the quarter, highlighting that existing installations are being used at a higher rate.
Despite this success and a rosy outlook for its products' demand, InMode's shares have floundered. But now at a forward P/E ratio of 14, the stock trades well below the average of the S&P 500 Index. Thanks to this discount and analysts guiding for 20% sales growth in 2023, InMode's net profit margin of 36% and budding razor-and-blade model make it a brilliant lifelong holding.
