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The pandemic-battered U.S. economy recently received a lease of life when the $1.9-trillion American Rescue Plan was passed earlier this month. This stimulus, which is part of the broader Build Back Better agenda, has significantly boosted investor sentiments.
Following the earlier package, another financial stimulus package of $2 trillion was unveiled yesterday, known as the American Jobs Plan. Although the impacts on the MedTech sector are unclear, it is expected to maximize health benefits via better infrastructures, per a White House briefing.
A third stimulus is also in the cards which is expected to focus on healthcare and childcare. Details are awaited about the third rescue package. However, considering its focus on general healthcare, the U.S. MedTech sector is likely to receive a significant boost once this bill is passed.
These back-to-back financial stimuluses are expected to uplift market sentiments on the overall economy as it tiptoes into the new normal.
MedTech in 2021
As 2021 began, the MedTech sector started gradually adjusting to the pandemic-led business challenges. However, the emergence of the new strain of coronavirus along with surging cases of new infections looms large on the sector. Given this, the performance of some of the major MedTech players is likely to reflect a re-run of their 2020 performance when several renowned companies suffered due to the nature of their businesses. It is again likely that the non-COVID and elective subsectors will be unable to match up to the level of the companies engaged in COVID-related businesses, thus leading to mixed performance by the MedTech sector.
A notable company engaged in COVID-related critical care business, which put up an impressive performance over the past few months, is ResMed Inc. RMD. The renowned sleep disorder and breathing solutions provider has continued to witness strong demand for its ventilators and ventilation mask systems. The company has also been strengthening its provision of digital health solutions and other tools to customers, thus aiding remote care amid the pandemic. Over the past six months, the company’s share price has surged 15.8% compared with the sector’s 5.5% rise.
In contrast, global ENT medical technology provider Intersect ENT, Inc. XENT has witnessed a significant fall in revenues due to suspension of elective surgical procedures by hospitals and reduced ENT office visits over the past few months. In the past three months, the company’s share price has plunged 9.4% compared with the industry’s 1% fall.
3 Stocks to Buy
As the virus is again wreaking havoc, the market is bracing for a widespread and stretched panic selling of MedTech stocks. This will again drag down prices of fundamentally-strong stocks, making them dirt cheap. Given that strong long-term performers are again available at comparatively cheaper rates, investing in such value stocks will be prudent for investors.
To narrow down the list, we have selected those with a Value Style Score of A or B. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential. All the stocks discussed here carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Listed below are four companies that investors can consider during these trying times.
The first company to consider is well-known manufacturer and distributor of medical equipment used in non-acute care settings, Invacare Corporation IVC. The company, with a Value Score of A, and its subsidiary, Alber USA, LLC announced the introduction of their next generation of power assist devices – the e-motion (M25) – in March 2021. Also, the company’s fourth-quarter 2020 net sales reflected a robust sequential improvement driven by strong demand for its products.
Its P/B ratio is an impressive rate of 0.9 compared with the industry’s 4.8. Further, its P/S ratio stands at 0.3 compared with the industry’s 3.9. The stock has lost 9.6% over the past three months against the industry’s 6.9% rise.
Our next pick is well-known health care services and information technology company, McKesson Corporation MCK. The company, with a Value Score of A, launched a pharmacy management solution for oncology practices, ScriptPAS, powered by Biologics by McKesson specialty pharmacy in March. The same month, the company announced a tie-up with Vanderbilt Health Rx Solutions to offer the latter’s full suite of specialty pharmacy consulting services to McKesson’s health system clients.
Its PEG ratio is 1.6 compared with the industry’s 2.1. Further, its P/S ratio stands at 0.1 compared with the industry’s 3.9. The stock has gained 50.9% over the past year versus the S&P 500’s 59.4% rise.
Renowned global medical device provider Hill-Rom Holdings, Inc. HRC is our final choice. The company, with a Value Score of B, has been seeing sharp recovery in emerging market sales over the past few months. During the first quarter of fiscal 2021, the company saw strength in demand for bed rentals and several Front Line Care products along with sequential recovery in the Patient Support Systems arm.
Its P/CF ratio stands at 11.1 compared with the industry’s 20.6. Further, its P/S ratio stands at 2.5 compared with the industry’s higher ratio of 6.4. The stock has gained 2.5% over the past year versus the industry’s 35.9% rise.
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