Medical device stocks were sizzling hot in 2019. The iShares U.S. Medical Devices ETF soared 32%, easily beating the S&P 500‘s performance. This medical device exchange-traded fund (ETF) also trounced the 18% gain delivered by the Health Care Select Sector SPDR ETF, which includes stocks from across the healthcare sector.
Will 2020 be another great year for medical device stocks? I think so. Here are three top medical device stocks you can buy in January to profit from the booming industry.
1. Abbott Labs
Abbott Laboratories (NYSE:ABT) ranks as one of the most attractive blue chip stocks on the market right now, in my view. While Abbott’s 20% return in 2019 lagged behind the broader market indexes and many other medical device stocks, I expect 2020 will be a big year for the healthcare giant.
The biggest catalyst for Abbott should be the anticipated FDA clearance for the new version of its popular Freestyle Libre continuous glucose monitoring (CGM) system. This new version of Freestyle Libre supports interoperability with other devices and will include alarms, features that will enable Abbott to compete even more effectively against DexCom‘s G6 CGM.
But Freestyle Libre isn’t the only thing Abbott has going for it. The company markets a wide range of products that generated close to $32 billion in sales last year. Among those were several new products that, along with Freestyle Libre, are important growth drivers for Abbott, including Alinity diagnostic systems and MitraClip mitral regurgitation devices.
Investors should also like Abbott Labs’ dividend. The company recently boosted its dividend by 12.5%, marking its 48th consecutive year of dividend increases. Abbott’s dividend currently yields close to 1.7%.
2. Intuitive Surgical
Intuitive Surgical (NASDAQ:ISRG) is another big medical device stock that underperformed a bit last year. The robotic surgical systems maker delivered a gain of more than 23%, which isn’t too shabby but wasn’t quite as good as some medical device stocks. But my view is that Intuitive should remain one of the steadiest winners on the market.
The key reason behind my long-term optimism about Intuitive Surgical is its 21st-century version of the old razor-and-blades business model. Intuitive derives over 70% of its total revenue from recurring sources, primarily replacement instruments and accessories for its da Vinci robotic surgical systems. This recurring revenue continues to grow as the company sells and leases more systems and as customers use robotic surgery for more procedures.
Procedure volumes will almost certainly increase due to two key factors: demographic trends and product innovation. With aging populations in the U.S. and across the world, more surgeries that are ideally suited for robotic assistance will be performed. Intuitive Surgical also continues to launch new products like its Ion robotic system for lung biopsy and da Vinci SP for transoral surgery, which expands the types of procedures for which its technology can be used.
I also expect that robotic surgery will gain more widespread acceptance and adoption with new rivals entering the market. Although increased competition usually isn’t great news for a stock, my view is that the moves by Medtronic and others to launch new products will expand the robotic surgery market and benefit Intuitive Surgical over the long run…
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