When you think of medical technology, you might envision a giant robotic arm wielding a tiny surgical instrument. Or, on a smaller scale, you might think of sealants that doctors use to conduct soft tissue reconstruction.
This pie chart spotlights the medtech/bio-surgery industry where these innovations are taking off in an industry that is expected to grow to $15.58 billion by 2023, according to MarketsandMarkets, a revenue-impact research company in the United Kingdom. As many as 10 gurus have piled on shares of companies in this burgeoning industry.
With a market cap of $67.24 billion, the New Jersey-based Becton, Dickinson and Co. (BDX, Financial) leads the industry. California-based Intuitive Surgical Inc. (ISRG, Financial) is the second-largest, grabbing 19.2% of the market. Guru Daniel Loeb (Trades, Portfolio)’s Baxter International Inc. (BAX, Financial) makes up approximately 13% of the industry, according to GuruFocus’ industry weightings.
Here’s a look at the top medtech companies that have attracted the largest number of guru shareholders. Other companies that are in the industry include Hologic Inc. (HOLX, Financial) and Intuitive Surgical (ISRG, Financial).Â
Baxter International Inc. (10 gurus)
Illinois-based Baxter provides mostly renal and hospital products, including infusion systems, nutrition therapies and bio-surgery products. It also sells injectable drugs, IV pumps and solutions.
Third Point’s Loeb has been a longtime active shareholder of Baxter. In 2015, the guru initiated a 9.9% position in the company, worth more than $1.5 billion. The investment is now valued at more than $2.3 billion, an estimated gain of 84% according to GuruFocus. Loeb’s initial buy in the second quarter of 2015 was for 3.9 million shares at an average price of $37.38 a share. In late afternoon trading on Thursday, shares traded just under $74 a share. Three years ago, the company was considered an under-earner with margins trailing its peers.
The company has undergone a transformation over the last three years, including a major shift at the top. Jose Almeida was named CEO in 2016 and began a number of sweeping changes, including zero-based budgeting, cost-cutting initiatives and a focus on high gross margin businesses. A member of Loeb’s team at Third Point took part in the selection of Almeida, and also joined the Baxter board of directors in September 2015.
In three years, the stock has climbed 102%. The increase in the stock’s value is attributed to the company’s improved earnings power. At a market cap of $40 billion, Baxter ranks third in market cap compared to larger companies Becton Dickinson and Intuitive Surgical.
Baxter reported a dividend yield of 0.89%. Its dividend payout is 42%. It is trading at 50.41 times price-earnings, 26 times forward price-earnings, 4.49 times price-book and 3.92 times price-sales. Its price-book and price-sales ratios are lower than more than half of its peers.
GuruFocus found a five-year decline in revenue per share in addition to diminishing gross margins of -3.5% a year. Operating margins have been in a five-year decline of -5.5% a year.
GuruFocus rates the company 7 out of 10 in financial strength and 5 out of 10 in profitability and growth.
At a value of over $73 a share, the stock is trading above historical values, according to GuruFocus’ median price-sales chart.
The company saw profits shoot up in 2017, then decline a year later to less than $700 million. In revenues, it topped $10.6 billion in 2018.
Guru shareholders included George Soros (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Dodge & Cox, Bill Nygren (Trades, Portfolio) and Robert Olstein (Trades, Portfolio).
Becton, Dickinson and Co. (6 gurus)
At a market cap of $67 billion, Becton Dickinson is the industry leader with a four-star business predictability rating from GuruFocus, delineating stocks that increase their value, on average, 9.8% a year. In five years, the stock has jumped 142%. It traded on Thursday afternoon at almost $252 a share, up 0.31%.
Gurus like the stock for its forward price-earnings ratio of 19.88 times, which is higher than 72% of its competitors in the Global Medical Instruments and Supplies industry. It has a price-book ratio of 3.19, which is ranked higher than 70% of its peers. Its price-book ratio is 4.44 and 57% lower than its peers. In terms of revenue and profits, the company reported profit of more than $1.1 billion on revenues of over $12 billio in 2018. Analysts forecast revenue of $12.2 billion in 2020. The estimate on earnings per share is $3.61.
GuruFocus also showed that the company has lagged in gross and operating margins. It is amassing assets father than revenue, which could signal an increase in inefficiency.
It provides a dividend yield of 1.19%. The yield is higher than 63% of competitors.
Guru shareholders included Lee Ainslie, Soros, Jim Simons (Trades, Portfolio), Gayner, Robert Olstein (Trades, Portfolio), Gabelli, Grantham and Caxton Associates (Trades, Portfolio).
The GuruFocus median price-sales chart shows it is trading above its historical value.
GuruFocus ranks it 4 out of 10 in financial strength and 8 of 10 in profitability and growth.
