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Anticipating a Game-Changing Turnaround for These 5 Med Tech Firms

Published 08/31/2023, 03:23 PM
Updated 09/29/2021, 03:25 AM
  • Med tech stocks are down compared to last year but are supported by secular tailwinds that generate cash. 
  • Med tech stocks offer long-term growth, value, and dividends for investors. 
  • The group is diverse and offers a selection for demanding investors. 
  • 5 stocks we like better than Abbott Laboratories.

Med tech has been on the skids for no fault of its own. It’s not the industry's fault that price action was driven to a frothy bubble by COVID-inspired trading outlooks or that the market has normalized. The salient point is that the med tech and med tech stocks market has normalized and presents a healthy opportunity for investors. These stocks are trading at or near long-term lows, offering value, cash flow, and dividends. 

In 1 case, an above-average growth opportunity shouldn’t be ignored. In all cases, the analysts' sentiment is shifting or shifted into a more bullish posture that is helping to support the action in these cash-generating dividend-paying machines. Oh, and they are supported by secular tailwinds, including a growing, aging population spending more on medical services and procedures than ever before. 

Medtronic is a High-Yield Contender in Med Tech 

Medtronic PLC (NYSE:MDT) is the highest-yielding stock on this list, with a payout of nearly 3.3%. That is a relatively safe payout at only 50% of the earnings, and the company is growing the distribution. The distribution has been increased for nearly 50 years, proving the management structure is foresighted, disciplined, and savvy to shareholder sentiment. As old as it is, the company is still growing and producing mid-single-digit growth in 2022.

That is expected to continue in FQ2 and next year. Fourteen analysts rate this stock a Hold. The Hold has been firm and steady over the past 12 months and has a firm price target. The price target is down compared to last year but rising since the release of Q1 results and about 13% above the current price action.

Medtronic

Intuitive Surgical is The Growth Stock in Med Tech 

Med tech is growing, and Intuitive Surgical Inc (NASDAQ:ISRG) is outpacing the group. It is posting double-digit growth due to the widening use of its Davinci robotic surgical systems and the deepening penetration of services offered by its users. The pace of growth is expected to continue this year and next and may slack off in calendar 2025.

That outlook has the stock trading at a high 54X this year’s earnings, but keep this in mind. The stock is outpacing the industry and has the cash flow to pay dividends when (if) the board decides it’s time. Takeaways from the Q2 release include outperformance and raised guidance. Analysts rate this stock at Moderate Buy with a price target of 14% above recent action and trending higher. 

Intuitive Surgical

Baxter International, Another High-Yield Growth Stock

Baxter International Inc (NYSE:BAX) offers clients various medical devices, services, and technology worldwide. It’s been growing at a low-to-mid-single-digit pace, which is expected to continue, if not accelerate, next year. This stock, like MDT, offers value trading at only 15X its earnings while paying a 2.8% dividend yield.

The company has increased the distribution for 7 consecutive years, so there is an expectation for more; it pays only 40% of its earnings, so there is room in the cash flow. The company carries debt but not an onerous amount; the debt coverage ratio is about 3.8X. 

Baxter

Abbott Laboratories for Diversification in Health Care Products 

Abbott Laboratories (NYSE:ABT) is no pure play on medtech but offers diversification for med tech investors. The company’s Medical Devices segment is 43% of the business and the fastest growing at 13%. It is complemented by nutrition, established pharma, and diagnostic division, which has been impacted by slowing COVID business.

The takeaway from the Q2 report is that core business continues to grow and support the dividend outlook.

The company pays about 2.0% and is a Dividend King when adjusted for the AbbVie spin-off. 

Abbott Laboratories

Stryker: While The Iron is Hot 

Stryker Corporation (NYSE:SYK) operates in 2 segments, with both contributing to growth. The hot segment is MedSurg and Neurotechnology, which is growing at a double-digit pace. The company’s stock has been trending higher since last year due to a series of beat-and-raise quarters that could continue through the end of the year. The analysts have been raising their targets for Q3 results, but the bar is still low, given recent strengths.

The only detracting factors are that the stock pays 1% in yield and trades at a 26X multiple. Assuming the company produces a solid report for Q3, the market should rebound from recent lows and continue the uptrend if it doesn’t rebound before then. 

Stryker

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