The U.S. medical device industry has exhibited strong and sustainable growth of late due to an aging population and increasing incidences of chronic and lifestyle diseases. The industry has also benefited from the increasing adoption of artificial intelligence (AI) and big-data applications, upbeat consumer sentiment and rising business investments.
Further, a rise in middle-class income has persuaded people to choose better healthcare standards. Moreover, the recent uptrend in projected growth of the Medical Device industry can be attributed to the two-year suspension of the 2.3% Medical Device tax in January. Elimination of the tax will result in huge savings for the medical device players, in turn compelling them to focus on innovation.
Undoubtedly, the sector appears to be in the pink of health. Per consulting specialist Emergo, the U.S. medical device industry was valued at $147.7 billion in 2016 and is projected to grow significantly through 2019 to $173 billion.
PwC observes that 2018 will be a year of resilience for the U.S. healthcare industry. The industry is likely to revamp its operational efficiencies to improve performance and offset risks, like, natural disasters, cost pressures, to name a few. This may spur health organizations to seek out greater cross-sector collaboration, make new strategic investments and create efficiencies.
External Uproars Making the Outlook Bleak
While MedTech does appear to be sound health, it isn't resilient to macro issues. The ongoing U.S.-China trade war is one of the primary macros issues which is likely to act as a dampener for the industry. Trump has identified 10 sectors for imposition of higher tariffs and Healthcare, including medical equipment happens to be one of those. Investors will be wary of investing in these sectors at the moment and consequently, these are likely to bear the brunt of the trade dispute.
According to data provided in an article by Christian B. Jones in mondaq , MedTech firms in the United States currently sell medical devices worth $4.7 billion annually to China, while it imports medical devices worth $5 billion from China. U.S. exports of medical devices last year totalled $52 billion, resulting in worldwide trade surplus of $1 billion. Needless to say, the medical device fraternity is extremely apprehensive regarding the proposed tariffs on Chinese products as it could significantly affect international trade.
Meanwhile, the recently concluded summit between President Trump and Kim Jong Un, has garnered a lot of positivity in the United States. With the two presidents signing a historic agreement to completely denuclearize North Korea, chances of a nuclear invasion of the United States appears improbable.
Making the Right Picks
In this highly turbulent and confusing backdrop, it is prudent to look for stocks that are currently undervalued but have bright growth prospects over the long haul. Such stocks are likely to register higher gains if the market shoots up in future. This implies that undervalued stocks cushion investors from market jitters, while the companies' robust fundamentals ensure solid portfolio returns.
However, picking the right stock can be a difficult task. The Zacks Style Score comes handy in this regard. The Value Style Score help us filter the stocks which are undervalued and might have a solid growth potential later. With the help of the Zacks Stock Screener , we have zeroed in on four medical stocks, which are currently positioned well in the U.S. MedTech space.
We have also taken care to include stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) along with a Value 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 or 2 are better picks than most. You can see the complete list of today's Zacks #1 Rank stocks here .
Our first pick is Kamada Ltd.KMDA , which carries a Zacks Rank #2 and a Value Score of A. The stock currently trades at a forward P/E of 19.3x, which is much lower than the industry's average of 23.3x, to which it belongs. Moreover, the stock trades at a P/S ratio of 1.9x, which is also significantly discounted, compared with the industry's 15.3x.
In the past three months, the stock has rallied 4.6%, versus the industry 's decline of 6.2%.
Next on our list is ANI Pharmaceuticals, Inc.ANIP carrying a Zacks Rank #2. The stock has a Value Score of B. Furthermore, the stock presently trades at a forward P/E of 12.4x, which is much lower than the industry's average of 23.3x, to which it belongs. Moreover, the stock trades at a P/S ratio of 4.3x, which is also significantly discounted, compared with the industry's 15.3x.
In the past three months, the stock has rallied 12.8%, against the industry's decline of 6.2%.
Another stock that makes to our list is CRH Medical CorporationCRHM . The Zacks Rank #2 stock has a Value Score A. The stock currently trades at a forward P/B ratio of 2.1x, which is lower compared with the industry's ratio of 4.7. Moreover, the stock trades at P/S ratio of 2.5x, lower than industry's 4x.
In the past six months, shares of CRH Medical have rallied 38.7%, against the industry 's decline of 4.6%.
Investors can also consider Computer Programs and Systems, Inc.CPSI . Notably, the stock flaunts a Zacks Rank #1 and has a Value Score B. The stock currently trades at a forward P/E ratio of 17x, significantly lower than the industry's average of 35.7x. Moreover, the stock trades at a PEG ratio of 1.6x, which is also significantly discounted, compared with the industry's 3x.
In the past six months, the stock has rallied 13.4%, significantly outperforming the industry 's gain of 6.1%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.