U.S. Markets closed

3 Top Diabetes Stocks to Watch in March

Keith Speights, George Budwell, and Sean Williams, The Motley Fool

Diabetes. Chances are, you know someone who has the disease. Maybe that someone is even you. It's a major health problem, not only in the U.S. but across the world. But where there are problems, there are also opportunities.

Lots of companies are feverishly working to develop products to manage and treat diabetes. Many of these companies are publicly traded. We asked three Motley Fool healthcare contributors to pick the top diabetes stocks they think investors should especially watch in March. Here's why they chose AstraZeneca (NYSE: AZN), DexCom (NASDAQ: DXCM), and Medtronic (NYSE: MDT).

Doctor writing "Diabetes" in black ink.

Image source: Getty Images.

A key piece of the puzzle

George Budwell (AstraZeneca): After a lengthy bout with the patent cliff, Anglo-Swedish drugmaker AstraZeneca finally turned the corner in late 2018, thanks to six key growth products. While the company's oncology franchise has grabbed the bulk of the credit for this return to form, Astra's diabetes franchise has played a crucial role as well.

In particular, Astra's type 2 diabetes medicine Farxiga (Forxiga in the EU) has become a core element of the company's growth engine over the last few years. Farxiga's sales, for example, grew by an impressive 30% year over year in 2018, making it one of the best-selling SGLT2 inhibitors last year.

Nevertheless, this top diabetes drug still has a lot more room to grow from a sales standpoint. If regulators agree to expand Farxiga's label to include type 1 diabetes patients and those at-risk of heart failure, for instance, Wall Street thinks the drug's sales can nearly double from current levels to reach a whopping $2.7 billion by 2023.

So why is AstraZeneca's stock worth watching this month? The company is set to unveil new analyses from Farxiga's cardiovascular outcomes trial, Declare, in type 2 diabetics at the American College of Cardiology's 68th Annual Scientific Session this weekend. As Farxiga is a key piece of Astra's overall growth story, the market could react strongly -- either positively or negatively -- to this presentation over the course of next week. Billions in future sales, after all, could be at stake

The leader in a fast-growing market

Keith Speights (DexCom): It's no exaggeration to say that quickly responding to out-of-whack blood sugar (glucose) levels can often be a life-saving move for individuals with diabetes. But to respond requires knowing the blood sugar level in the first place. That's where continuous glucose monitoring (CGM) systems come into play. These systems enable people with diabetes to always know what their blood sugar levels are.

Around 415 million people across the world have diabetes. Only 6% of them, though, achieve their desired outcomes. Around 70% of the time, these individuals have blood sugar levels that are outside of a healthy range. The market is enormous for CGM systems and continues to grow -- and one company is the leader in this fast-growing market: DexCom.

DexCom's share price more than doubled in 2018. This fantastic performance was driven primarily by success of the company's G6 CGM system. The G6 doesn't require finger sticks like most CGM systems do. It also integrates with top insulin patch pumps, smart insulin pens, and insulin pumps.

I think sales for the G6 will continue to skyrocket, propelling DexCom stock even higher. The company is also working on its next-generation CGM system, the G7, which will offer individuals with diabetes a fully disposable, real-time glucose monitoring system at a relatively low cost. DexCom looks like a diabetes stock to watch in March -- and for a long time to come.

This med-tech kingpin is a smart bet

Sean Williams (Medtronic): Although diabetes devices comprise less than 10% of aggregate sales at Medtronic, a medical device conglomerate that's perhaps best known for manufacturing cardiovascular and spinal devices, I believe it to be the most interesting diabetes stock as a result of its growth and innovation.

In September 2016, Medtronic made waves when its first-ever "artificial pancreas" device, the MiniMed 670G, was approved six months ahead of schedule by the U.S. Food and Drug Administration for type 1 diabetics. The company's closed-loop system uses a protruding needle that's slipped under the skin to measure insulin levels, which then relays those readings to a worn insulin pump that can then deliver insulin on an as-needed basis. While no insulin pump is perfect, the 670G is designed to significantly reduce dangerous hypoglycemic events for type 1 diabetics.

Although we're talking about only roughly 1.25 million people out of the 30.3 million kids and adults with diabetes in the United States, these 1.25 million people have a much harder time controlling their blood glucose levels. According to the company's fiscal third-quarter results, released in February, more than 157,000 users worldwide are benefiting daily from the 670G. This figure continues to increase, with Medtronic having ramped up manufacturing capacity for the device in the U.S. and the company pushing into overseas markets.

Additional innovation with the Guardian Connect continuous glucose monitoring system, which debuted last summer, is also helping generate superior diabetes sales growth. Guardian works with a user's smartphone to map out the highs and lows of a person's blood glucose levels in order to better help a patient track and tackle their diabetes.

In recent years, diabetes has been Medtronic's fastest-growing segment, with high single-digit, or steady double-digit, increases to sales. I would look for this to continue, and for the ramp-up of Guardian Connect and the international rollout of the MiniMed 670G to "pump up" operating results in fiscal 2019 and 2020. For these reasons, Medtronic is my diabetes stock to monitor this month.

More From The Motley Fool

George Budwell owns shares of AstraZeneca. Keith Speights has no position in any of the stocks mentioned. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.