I have made the case before that medical technology has something to appeal to any type of investor. If you want value, you will find it. If you want income, you will find it. Today, we talk about some of the most highly-valued "hot" stocks in the space.
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Edwards Lifesciences - Not Boring Anymore
For quite a while, Edwards Lifesciences (NYSE:EW) was a sleepy company. A leader in tissue heart valves and critical care monitoring products, there was a time when it was difficult to get anybody interested in this idea.
Edwards is making a concerted effort to move into higher-growth, higher-margin products. With a very interesting new approach to heart valve replacement, the minimally-invasive trans-catheter Sapien valve, the company is well on its way and could become a consistent double-digit grower. (For more, see A Checklist To Successful Medical Technology Investment.)
No discussion of red-hot medical device stocks is complete without Intuitive Surgical (Nasdaq:ISRG). No matter how many analysts point out that the company has been struggling to expand beyond prostatectomies and hysterectomies, the company keeps churning out incredible growth and investors are still willing to pay up for these expensive shares. As a company that has come out with one of the most innovative products in recent memory, this is one name where the hype really does make sense. If they can crack a third market, who knows how far the technology could go.
Thoratec Gets The Heart Going
Supporting the heart is a growing business for Thoratec (Nasdaq:THOR), and investors have responded by supporting the stock. Thoratec might finally have the device to break open a market that has been estimated to be worth billions with the right approach. With growth in pacemakers, ICDs and stents now stagnant, Thoratec and its heart-assist devices could be the next major mover in cardiology.
The Diabetes Duo
Diabetes is a hugely lucrative business and better mousetraps quickly garner considerable attention. With the first commercial continuous glucose monitor (DexCom (Nasdaq:DXCM)) and the first disposable insulin pump (Insulet (Nasdaq:PODD)), these two companies have clearly stepped up as innovators in the field. DexCom would seem to have the brighter future at this point, as Insulet continues to burn through cash and has not managed to grab a sustainable level of market share.
The New New Thing
Like diabetes, spinal care is one of the perpetually hottest areas of medical technology. Nuvasive (Nasdaq:NUVA) has come up with a proprietary approach to spinal fusion (a $4 billion/year market) that is safer than traditional means and is looking to build on this success by expanding into additional markets like total disc replacement and orthobiologics. Given just how essential a strong spinal business is to almost every large orthopedic company, it seems like only a matter of time before a larger company makes an offer Nuvasive will not refuse. (For more, see Investing In Medical Equipment Companies.)
Mending the Mind
Aneurysms are deadly serious business and treating them by open surgery can lead to huge side effects. Micrus Endovascular (Nasdaq:MEND) has developed an excellent line of small metal coils that fill aneurysms and help prevent them from rupturing. A recent trial offered a surprising good news/bad news dichotomy - the company's new Cerecyte coils failed to show significant improvement in a trial, but that was because the company's own platinum coils (the standard that Cerecyte was competing against) were shown to be a lot better than expected! Although the valuation here is rich, several more years of mid-teens revenue growth seems a pretty good bet here, and that is growth that many investors (and companies) will pay up to get.
The Bottom Line
None of these stocks are going to make the grade for value-oriented investors. I would be remiss, though, if I did not mention that high valuations are not an impediment to even higher stock prices, particularly when there is exceptional underlying growth. If you are an investor willing to pay up for double-digit growth, this list of quality med-tech names could be a great place to start your research.
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