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One great way to invest in healthcare is to target medical device manufacturers. These devices help doctors perform surgeries, aid patients in recovery, and assist people in managing chronic conditions like hypertension and diabetes.
But it's not a hotbed of investment opportunities. Since 2021, the $iShares Dow Jones U.S. Medical D(IHI)$ has only gone up 6%, while the $S&P 500(.SPX)$ has surged over 36%. But because many investors have overlooked medical device stocks, there are some attractive buying opportunities.
$Medtronic PLC(MDT)$ and $DexCom(DXCM)$ are key players in this space. Given their solid financials and long-term growth opportunities, investors should snap them up first. Don't let their modest gains over the past year fool you, these stocks are built for the long haul.
1.Medtronic
Medtronic is a behemoth in the medical device industry, helping millions of people worldwide. Their products improve patients' quality of life and assist in treating over 70 different conditions. With constant innovation and new products hitting the market, the company boasts over 49,000 patents and hundreds of clinical trials underway.
Supply chain issues and rising costs are two challenges this healthcare giant has faced in recent years. But if you're investing for the long haul, these are just temporary blips on the radar. In the long run, the opportunities far outweigh the short-term challenges.
Encouraged by strong performance, the company modestly raised its guidance, expecting organic revenue growth of 4.75% to 5% this fiscal year.
The stock has only gone up 2% in the past 12 months. But with strong profits and modest earnings, it's an attractive deal for investors. Analysts expect a forward P/E ratio of 15 for Medtronic stock, which is below the healthcare industry average of 19.
2.DexCom
DexCom doesn't have the breadth of Medtronic, it's laser-focused on diabetes care, helping patients manage their blood sugar levels with continuous glucose monitoring (CGM) devices. Diabetes is a growing problem, and analysts estimate that by 2060, there could be 60.6 million adults with diabetes in the US, almost triple the 22.3 million in 2014.
CGM can play a crucial role in helping hyperglycemic patients manage their diabetes and reduce the risk of complications. DexCom is a leading CGM provider, and in 2022, the FDA approved the G7, its most accurate and smallest device yet.
In February, DexCom released its latest numbers, reporting sales of slightly over $1 billion in the last three months of 2023, up 27% from a year earlier. The good news is that the business can also be very profitable. DexCom's net income totaled $256.3 million in the latest quarter. The company expects organic revenue growth of 16% to 21% in 2024.
Despite the promising growth opportunities ahead for DexCom, investors seem to have overlooked this stock, with its share price flat over the past 12 months. The stock trades at a forward P/E ratio of 70. While it's not a cheap stock, there's plenty of room for growth in the business, making it a worthy buy in the long run.
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