Could boring be back in style?
With the latest pullback in the stock market, boring stocks that are largely insulated from concerns about China might be just what the doctor ordered for anxious investors.
One particularly dull industry that warrants attention is medical supplies. After all, patients and healthcare providers will still need bandages, drugs, insulin pumps, and other supplies, regardless of the latest international financial intrigue.
Here are three medical supplies stocks that might seem boring at first but have the potential to add a little excitement to investors' portfolios over the long run.
1. McKesson Corporation (NYSE:MCK)
A quick look at McKesson's stock performance over the past few years appears anything but boring. Although shares are down somewhat with the recent overall market pullback, McKesson is still up 228% over the past five years.
McKesson is one of the largest medical suppliers around. Over half of all U.S. hospitals and one-fifth of all U.S. physicians use its products and services. Its medical and surgical distribution business unit hauled in $1.44 billion last quarter. The company's big revenue-generator, though, is drug distribution, which made $45.37 billion in the second quarter.
Wall Street analysts think McKesson's stock could jump more than 25% from current levels. Acquisitions have helped boost its market presence on the distribution front. McKesson's bottom line growth, though, is getting even more help from its technology solutions business unit: technology solutions accounted for only 1.5% of total revenue last quarter, but contributed nearly 15% of profit. Profits from the unit more than doubled from the same quarter in 2014.
2. Tandem Diabetes Care (NASDAQ:TNDM)
Tandem Diabetes Care can't boast of many of the positives that McKesson can claim. The company is losing money. It has only traded publicly for less than two years. And Tandem's stock is down 38% since its initial public offering.
So why is Tandem a medical supplies stock to watch? Because some solid growth could be incoming.
Optimism about Tandem's prospects stems in large part from the company's niche focus on diabetes care. Over 22 million Americans have diabetes -- and the number is growing. Tandem has something of a razor-and-blade business model with its insulin pumps. Customers buy the pumps (typically paid for by insurance companies) initially, but then continue to purchase pump-related supplies, including disposable cartridges, over time. While the stock isn't exactly inspiring, a solid business model with sticky relationships could help the company do well.
3. Cardinal Health (NYSE:CAH)
Cardinal Health has more in common with McKesson than it does Tandem Diabetes Care. Like McKesson, Cardinal is a multi-billion dollar drug wholesaler and medical supplies company that has seen its stock perform pretty well over the last five years.
During the second quarter, Cardinal Health's medical supplies business generated revenue of $2.9 billion -- a 4% year-over-year increase. However, like McKesson, the company makes much more money from its pharmaceutical distribution business. That unit brought in $24.7 billion last quarter.
Observers on Wall Street think Cardinal's stock could jump more than 20% in the next 12 months. The company's ability to maximize results from several recent acquisitions, including Harvard Drug Group and Cordis, will be key in determining whether this optimism proves correct.
Boring is beautiful
McKesson, Tandem Diabetes Care, and Cardinal Health aren't necessarily in the most exciting businesses. However, all three provide products that should remain in demand year in and year out.
It's these kinds of businesses that can prove most rewarding to investors. In the short term, boring is, well, just boring. Over the long run, though, boring can be beautiful.