One great thing about the healthcare sector is that the need for medical services never goes out of style, and in fact, is likely to be in even higher demand in the next decade.
That makes the industry a great place to look for stocks that can perform well over the long run, but not just any company can achieve this. Some are left behind as they fail to keep pace with the evolving sector requirements, while others know how to innovate and outperform their peers as a result.
HCA Healthcare (HCA -2.35%) and TransMedics Group (TMDX 0.91%) belong to the second group. Here's why these two healthcare companies could perform well in the next 10 years.
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1. HCA Healthcare
HCA Healthcare is one of the leading hospital chains in the U.S., with a significant presence across the country, although its business is concentrated primarily in Texas and Florida.
The industry is competitive, but HCA consistently performs well nonetheless. The company has several competitive advantages, including its extensive network of facilities that span acute care hospitals, specialty care, urgent care, and more. This diversified mix of facilities enables it to retain patients within its ecosystem, granting it significant negotiating power with private insurers and government payers.
As a result, HCA Healthcare has built relationships with these third-party institutions. Further, HCA routinely invests in cutting-edge technology, another factor that allows it to attract patients. These (and other) dynamics have enabled the company to increase its market share over time. It had a 24% market share in 2012, and 10 years later, that had risen to 27%.
HCA also records consistent revenue and profits. In the second quarter, the company's top line reached $18.6 billion, representing a 6.4% increase compared to the same period last year. The company's earnings per share climbed 23.5% year over year to $6.83.
Over the next decade, HCA Healthcare should benefit from increased hospital spending. In the meantime, the company will continue to implement the same strategy that has made it so successful over the years. It's also worth noting that there are significant regulatory and financial barriers to entry in the industry.
Newcomers then have to compete with established corporations to attract patients and third-party payers, but it's challenging to do so because those, like HCA Healthcare, that have been around for a while have already built solid relationships with major players in the healthcare sector. That's why it's hard to imagine HCA Healthcare completely losing its position. The stock should continue performing well over the long run.
2. TransMedics Group
TransMedics Group is helping revolutionize organ transplantation. It's already hard enough for those waiting for heart, lung, or liver transplants to find eligible donors. But to make matters worse, preserving them in good-enough quality is challenging. The traditional cold storage method leads to many of these organs deteriorating before they can be transplanted into waiting patients.
TransMedics developed the Organ Care System (OCS), which mimics the physiology of the human body to maintain the quality of donated organs for a longer period. Not only does TransMedics' technology lead to a significantly higher usage rate for organs, but it also decreases post-organ complications.
The company's innovations have yielded solid financial results. In the second quarter, TransMedics' revenue jumped by 38% year over year to $157.4 million, while its EPS of $0.92 was almost 163% higher than the year-ago period.
The company's shares have soared this year thanks to its excellent results, despite some headwinds, including a short-seller report that claimed it was engaged in various shady schemes, such as organ trafficking. Investors should always take the word of short-sellers -- who benefit from the decline in a stock price -- with a grain of salt. Without strong evidence to support these allegations, it's best to disregard the noise and focus on TransMedics Group's future and prospects.
Organ donation has increased in the past and is expected to continue doing so. TransMedics Group's clearly superior product -- which it plans to improve as it works on next-generation versions of its current systems -- should capture an increasingly higher share of that market, leading to sustained revenue and earnings growth. Even up 74% this year, the stock is a buy.
