The first half of the year has been a tumultuous one with the COVID-19 pandemic wreaking havoc across the medical device space. In fact, the pandemic has put a halt on R&D operations with many non-coronavirus and non-emergency-line innovations stuck or delayed owing to the lockdowns.
In fact, the impact doesn’t end there as the coronavirus-induced crisis took a heavy toll on several MedTech companies in the first half of the year. While the first quarter was impacted in a minor way, the second quarter bore the brunt of the crisis. Notably, most of the companies withdrew, suspended or lowered their guidance, a testament to the grim scenario. Meanwhile, companies heavily dependent on elective and non-critical procedures took a severe hit in the first half.
Nevertheless, every cloud has a silver lining. The coronavirus pandemic emerged as a boon to a section of Medtech. Companies involved in telemedicine, diagnostic testing and chronic disease management not only appeared resilient to the crisis but also capitalized on the same.
Promising Second Half for MedTech?
Despite apprehensions regarding a resurgence of coronavirus cases and stalled reopening plans, the stock market saw an encouraging start to the second half with major indices exhibiting mostly positive results and a new closing highs. The positive stock market performance culminated in the best third quarter in more than two decades driven by decline in unemployment rate and positive trial results for a potential coronavirus vaccine from Pfizer and partner BioNTech.
It comes as no surprise that MedTech too has gained from the positive sentiment. Particularly, the sub domains mentioned earlier are expected to deliver stellar second-half performances riding on strong first-half momentum.
Stocks Capitalizing on COVID-19
Already, a lot has been discussed by market watchers regarding the lucrative opportunities of the companies, which are involved in the non-elective critical care equipment or testing sub domains. Unfortunately, the sector bigwigs are the only ones that have come under the limelight.
For instance, a lot has been discussed about Thermo Fisher Scientific Inc. TMO, which sports a Zacks Rank #1 (Strong Buy). This company has taken significant strides with respect to diagnostic testing, which has helped it to gain from the pandemic-induced market volatility. In the first half of March, Thermo Fisher successfully attained Emergency Use Authorization (EUA) from the FDA for its diagnostic test to be used by the high-complexity laboratories under Clinical Laboratory Improvement Amendments (CLIA) in the United States. The test has been developed for the detection of nucleic acid, exclusively from SARS-CoV-2. Year to date, the company gained 20.9%, compared with the industry’s growth of 6.9%.
Similarly, the Zacks Rank #2 (Buy) RedMed Inc. RMD exhibited impressive performance amid this crisis scenario. Given a significant surge in demand for its critical care products, the company has been ramping up production of ventilators, masks and other respiratory devices since March, thereby benefiting from the crisis. In the first quarter, the company produced more than 52,000 non-invasive ventilators, including bilevels and invasive ones. Year to date, the company gained 27.5% against the industry’s decline of 7.2%.
Riding on the back of the momentum experienced in the first half of the year and strong fundamentals, both these companies are expected to impress investors in the second half as well. For 2020, the Zacks Consensus Estimate for earnings for Thermo Fisher is pegged at $12.73, indicating an improvement of 3.1% from the prior period, while for ResMed the consensus mark for fiscal 2020 stands at $4.48, suggesting growth of 23.1%.
Moreover, both these companies have similarities including management structure, low-debt level and capital deployment policy, which make them safe bets for investors.
Nonetheless, despite their stellar first-half gains, there lies a major reason that might make an investor hesitant in picking these two stocks, which is their exorbitantly high prices. As of Jul 15, Thermo Fisher closed at $392.70, while ResMed closed at $197.55.
Three Stocks to Consider Beyond TMO and RMD
In light of the above discussion, we have shortlisted three stocks that have outperformed both Thermo Fisher and ResMed since the beginning of 2020 and are inexpensive compared to these stalwarts. These stocks with Zacks Rank #1 or #2 have outperformed Thermo Fisher and ResMed on a year-to-date basis and have the potential to continue their bull run in the second half as well. You can see the complete list of today’s Zacks #1 Rank stocks here.
Immunomedics, Inc. IMMU: Despite COVID-19 pandemic, the company’s manufacturing capability and supply chain globally continues to progress smoothly with minimal impact from the crisis. Also, patient enrollment into the Phase 3 TROPiCS-02 study of Trodelvy in hormone receptor-positive, human epidermal growth factor receptor 2-negative metastatic breast cancer, has been resumed at approximately 20 clinical sites as of mid-May, with additional sites continuing to open. With uninterrupted manufacturing process and aforementioned positive development, the company performed well amid such a challenging period and is likely to do so in the second half as well.
On a year-to-date basis, the Zacks Rank #2 stock has gained an impressive 94.5%, compared with the industry’s growth of 7.8%. For 2020, the Zacks Consensus Estimate for revenues stands at $88.7 million, representing significant growth from the year-ago period. As of Jul 15, the stock closed at $41.16.
GenMark Diagnostics, Inc. GNMK: GenMark — a leading provider of automated, multiplex molecular diagnostic testing systems, delivered excellent progress in the first half as strong COVID-19 demand continued to drive additional ePlex placements, which provides the foundation for future recurring testing revenues across the company’s broader menu. Also, in the second quarter, the company submitted a EUA to the FDA for the ePlex Respiratory Pathogen Panel 2 (RP2 Panel), which is one of the first rapid-result multiplex panel tests that can identify 21 respiratory pathogens including SARS-CoV-2. This is going to have a positive impact on the company’s performance. The company carries a Zacks Rank of 2.
Year to date, the stock has gained a whopping 275.5% compared with the industry’s growth of 6.9%. For 2020, the Zacks Consensus Estimate for revenues stands at $126.3 million, indicating an improvement of 43.5% from the year-ago period. As of Jul 15, GenMark closed at $18.08.
Co-Diagnostics, Inc. CODX: Co-Diagnostics Logix Smart COVID-19 test, which is currently available to all clinical laboratories certified under CLIA and authorized for utilization to detect the virus, proved beneficial for the company. Its first-half performance rode on the back of impressive COVID-19 test sales and we expect this robust momentum to continue in the coming quarters.
The stock, sporting a Zacks Rank #1, gained 1872.8% on a year-to-date basis, against the industry’s decline of 0.8%. For 2020, the Zacks Consensus Estimate for earnings stands at $1.92 per share, representing a whopping growth of 633.3% from the year-ago period. As of Jul 15, the stock closed at $17.66.
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ResMed Inc. (RMD) : Free Stock Analysis Report
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