A good way to invest in the healthcare industry's continued growth is by targeting businesses that make medical devices. Such equipment aids physicians in surgery, helps patients recover, and can assist people in staying on top of chronic conditions, including hypertension and diabetes.
This hasn't exactly been a hot place to invest in, however. Since 2021, the iShares US Medical Devices ETF has risen by just 6%, while the S&P 500 has achieved gains in excess of 36%. But as many investors have been overlooking medical device stocks, that has created some attractive buying opportunities today.
Two stocks that are big players in this space and that can make for solid investments are Medtronic (MDT 2.27%) and DexCom (DXCM 3.59%). These are stocks investors should buy hand over first given their strong financials and long-term growth opportunities.
1. Medtronic
Medtronic is a massive medical device company that helps thousands of people all over the world. Its products, which can improve the quality of life for patients, help treat over 70 different conditions. It has over 49,000 patents in its portfolio and hundreds of clinical trials in progress as the company continues to innovate and bring new products to market.
NYSE: MDT
Key Data Points
Supply chain issues and rising costs have been a couple of big challenges the healthcare company has faced in recent years. But if you're investing for the long haul, those can be temporary issues in the grand scheme of things. In the long run, the opportunities far outweigh these short-term challenges.
In its third quarter, which ended Jan. 26, Medtronic reported net sales of $8.1 billion, which rose 4.7% from the prior-year period. Net income of $1.3 billion increased by 8.8%. Buoyed by the strong results, the company also modestly raised its guidance as it feels confident that things are moving in the right direction. It now projects an organic revenue-growth rate for the fiscal year between 4.75% to 5% (previously, it was forecasting just 4.75%).
The stock has risen just 2% over the past 12 months. But with strong profits and modest gains, it makes for an attractive deal for investors. Based on analyst expectations, Medtronic stock is trading at a forward price-to-earnings multiple of 15; the healthcare industry average is 19.
Medtronic is an excellent stock to buy and hold for the long term. Not only is its valuation cheap, but it also provides investors with a dividend that yields 3.3%, giving you plenty of incentive to remain patient with the stock as the business grows.
2. DexCom
DexCom doesn't have as broad of a business as Medtronic; its focus is on diabetes care and helping patients stay on top of their glucose levels with its continuous glucose monitoring devices, or CGMs. Diabetes is a growing issue, and analysts estimate that by 2060, there could be 60.6 million adults in the U.S. with the condition, which is nearly three times the 22.3 million people who had diabetes in 2014.
NASDAQ: DXCM
Key Data Points
CGMs can play a key role in helping people with high sugar levels stay on top of diabetes and lower the risk of complications. DexCom is a leading provider of CGMs and in 2022, the Food and Drug Administration (FDA) cleared the G7, which is the company's most accurate and smallest device to date.
An exciting opportunity for the business is the launch of Stelo, a glucose sensor for people with diabetes but who do not require insulin injections (the majority of diabetics fall into this category). The FDA just approved this device, which could unlock even more growth opportunities for the business in the long run.
In February, DexCom posted its latest numbers, which demonstrated strong double-digit growth as sales came in at just over $1 billion for the last three months of 2023, rising by 27% year over year. What's great is the business also generates strong margins; DexCom's net income totaled $256.3 million last quarter, which was just under 25% of its top line. For 2024, DexCom projects organic-revenue growth between 16% and 21%.
Despite the promising growth opportunities ahead for DexCom, investors have appeared to overlook the stock as its shares have been flat over the past 12 months. Although it isn't a cheap stock, trading at a forward-earnings multiple of 70, with plenty of room for the business to get bigger and more profitable in the future, this is still an exciting stock to load up on for the long term.
