Medical-device stocks were already one of this year's worst sectors when they were walloped by disclosures from surgical-robot pioneer Intuitive Surgical and analytical device supplier Danaher.
Intuitive stock has lost 17% since it said last week that U.S. procedure growth was slowing slightly. Danaher dropped as much as 14% this past Tuesday, when it told investors of a sales shortfall in its bioprocessing supplies. All of this confirmed fears of slowing healthcare utilization that have sunk the iShares U.S. Medical Devices exchange-traded fund more than 20% this year.
Those fears are overblown, and medtech stocks are a bargain. Device makers with cash flow yields of 5% to 6% now trade at a 20% to 30% discount to the S&P 500 index.
"I've got the ability to invest in these high-quality medtech companies at higher free-cash-flow yields than a Treasury," says Blake Goodner, co-founder of the healthcare-focused hedge fund firm Bridger Management.
The chief reason for medtech's tumble is the artificial-intelligence boom, as growth investors have piled their bets on Nvidia and other beneficiaries of hyperscale spending. Device stocks should regain attention as AI enthusiasm normalizes; the healthcare names did better this year on the days when AI names sold off.
Another worry is that patients are postponing medical procedures since the Affordable Care Act's premium subsidies ended in December and as federal Medicaid spending shrinks. Hospital chain HCA Healthcare cut its 2026 guidance last week, saying it was seeing more uninsured patients and a 2% to 3% decline in surgical volumes.
Goodner thinks federal spending on healthcare is stabilizing. Medicare Advantage payment rates have finally turned positive after a period of negative annual updates. Republicans have stopped threatening to "repeal and replace" the Affordable Care Act -- aka "Obamacare" -- and midterm wins by Democrats would calm Wall Street worries about healthcare access and utilization.
While the device makers haven't been launching market-creating innovations -- like the prior decade's robots, minimally invasive heart valves, and fibrillation-fixing ablation devices -- they continue to innovate and grow sales at mid- to high-single digit rates.
"What we've seen in a large part of this medtech ecosystem is you've seen growth slow, but still be durable," says Goodner. "And you've seen profit margins and importantly free cash flow expand, which could usher in greater share repurchases and dividends, as well as M&A."
With that outlook in mind, we size up six large-capitalization medical-device stocks.
Abbot Laboratories
Abbott Laboratories brightened the sector's gloom with fine June-quarter results that showed wider margins and growth in even its slow segments like nutrition. Its new nutrition products will offer protein to GLP-1 users. There are device launches coming for treating heart arrhythmias and monitoring diabetes. With the stock at 16 times next year's estimated earnings, analysts like Raymond James' Jayson Bedford think that Abbott shares can rise 15% in the next year, to top $115.
Danaher
Danaher disappointed fans this past Tuesday with June-quarter numbers marred by order delays for the resins used to separate biotech materials. That led the company to tweak the year's sales growth forecast to 4% from 6%. The stock's ensuing plunge was unwarranted. Danaher actually beat the quarter's earnings forecast and raised its earnings guidance for the year to about $8.53 a share. Demand for its lab supplies and diagnostic products remains intact, as corroborated by the good June results posted on Thursday by rival Thermo Fisher Scientific.
Intuitive Surgical
Robotic surgery pioneer Intuitive Surgical has traded at a premium valuation in its two decade expansion, and it has earned it by beating growth expectations. Last year, it guided for 14% growth in surgeries and ended with 18%. It was the absence of a guidance boost in last week's quarterly report that sank the stock, even though June earnings grew 24%. The stock's drop is a buying opportunity. Just-announced competition from Johnson & Johnson won't dent Intuitive's robot monopoly. Intuitive is bringing out lower-cost products to blunt would-be competitors. Few on Wall Street see less than 20% upside for the stock.
Medtronic
Medtronic's products for clearing carotid arteries are growing smartly, but its main products for cardiologists and neurologists aren't growing much. Growth in overall sales is forecast to slow to 4% in the next fiscal year from 7% in the current year. The stock trades at a cheap multiple of 13 times next year's earnings, and its current valuation makes next year's expected free cash flow of $7 billion equivalent to a 7% yield. But investors may want to wait until growth comes back into view.
Boston Scientific
Boston Scientific has been the worst hit among the big device firms. The stock is down 50% this year after the company trimmed guidance for 2026 sales growth to 8% from 10%. That's a big selloff for a small adjustment. The company is well managed and has new products coming out in markets where it leads, such as ablation procedures for atrial fibrillation. With its stock at just 13 times forward earnings, the company has a big buyback program. The current market capitalization makes its expected annual cash flow of $4 billion equivalent to a 6% yield.
Edwards Lifesciences
Edwards Lifesciences shares have held their value this year while other medtech stocks tumbled. That's because the company has beat earnings estimates as sales of its minimally invasive heart valves continue growing. On Thursday, it announced that June sales and earnings had also beat forecasts. Expanded Medicare coverage and the readout from an important clinical trial should allow the beats to go on. Bedford at Raymond James calls Edwards "one of the cleaner growth stories in large-cap medtech," and thinks the stock can rise to $100 from its current level of $84.
Write to Bill Alpert at william.alpert@barrons.com
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(END) Dow Jones Newswires
July 24, 2026 01:30 ET (05:30 GMT)
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