Medical devices include some of the most important inventions in the last 200 years. Spinal cord injury implants, artificial joints, and power wheel chairs are all examples of medical devices that have helped influence the pharmaceutical industry. In this article, I will delve into the medical device sector and pick my four top stocks for the industry as a whole.
Though the medical device sector is under pressure to contain costs, the market demand for its products is one of the reasons the industry is in a good shape. Indeed, the global medical device market will approach $434.4 billion by 2017. This represents an annual average growth of 7.1% from 2012.
However, the health care reform and challenging regulatory environment forced manufacturers to reevaluate their businesses. Though an ominous cloud of uncertainty hung over the sector in 2013, companies learned they had to adapt or risk becoming obsolete.
Consequently, there is now an increasing momentum for device companies to innovate with non-Western patients in mind. In other words, the device business is going global. A lot of companies sense this is where the money is. The chance for profits is good. This would be a real boost for medical device companies worldwide.
Johnson & Johnson (JNJ)
Johnson & Johnson is one of the clear global leaders when it comes to the sale of various medical devices. The company operates in three segments: consumer, pharmaceutical and medical devices. As mentioned earlier, companies in the sector are going global. JNJ is positioning itself to take advantage of the fact through a number of initiatives. The recent purchase of GunagzhouBioseal Biotech shows JNJ’s willingness to ride the expected growth in emerging markets. The company is laying some groundwork for its future business with an innovation center in Suzhou City. It will allow scientists familiar with the region to work on developing devices for the market. Johnson & Johnson is focusing heavily on a strategy that involves simplifying things.
JNJ is attractively valued. PE is 15.13, ROE is 20.7%, and dividend yield is 2.8%. In addition, the balances sheet is healthy with a levered cash flow of $11.85 billion. With a profit margin of 19.40%, JNJ is competitive compared to rivals.
Baxter International (BAX)
Baxter International is another of my pick as a result of the company’s present financial situation. Indeed, Baxter passes on a number of financial measures that I look for when valuing a company. For starters, its return on equity is reasonable at 26.2%, and the company pays a dividend of 2.90%. With an operating margin of 20.68% and a profit margin of 13.19%, Baxter International is competitive. Analysts predict that the company will be able to drive its EPS growth at over 7.44% over the next five years. In general, Baxter’s business segments are strong. The company manufactures products in 30 nations and sells them in more than 100 countries.
Covidien develops and sells healthcare products for use worldwide. Moving to speed up its emerging markets strategy, it completed two transactions that will enable it to achieve its ambitions. Covidien acquired WEM Equipamentos Eletrônicos Ltda. in Brazil. In China, it entered into a joint venture with the WEM Equipamentos Eletrônicos Ltda. Ltd.
Covidien is attractively valued, particularly when compared to competitors. Its forward PE is competitive at 15.63, and its operating margin is 21.76%. The company pays a dividend of 1.80%, and the return on equity is good at 15.25%. The company has been able to drive its EPS at over 8% in the past five years. The company's first quarter results were promising. Net sales rose 3% on a year-on-year basis, and operational growth sales increased 5%.
Sanomedics International Holding (SIMH)
Sanomedics announced recently that it intends to acquire a leading provider of professional healthcare services and solutions. The targeted company, which remains undisclosed, reportedly posted $30 million in revenues in the year 2013.
As an OTC, small-cap stock, it is higher risk than the other companies. However, it has shown a lot of promise with its initiatives. Sanomedics’ long-term strategy is to acquire innovative medical device companies for its revenue growth. It is worth consideration by investors looking for a speculative biotech company.
Medical devices include some of the most important inventions. However, the health care reform and the challenging regulatory environment have forced manufacturers to reevaluate their businesses. In the changed environment, I believe my four picks will thrive.