While technology has been the engine that has driven stock market performance for some time now, increasingly we are seeing a seismic shift to health care among many portfolio managers, and with good reason. Health care spending has grown for years, and with an aging population that is actually living longer, more and more procedures that may have been postponed in the past are being completed now.
A new component for the industry is the big increase in working from home, and this is helping to fuel growth for some of the top medical technology companies. In a new Jefferies research report from, the firm’s lead health care analyst, Jared Holz, makes the case that working from home could be a huge boost for the industry in the near term and into 2021 and beyond. The report said this:
With more of the U.S. population now able to be remote, at least more often than before, potential patients find themselves in a much better spot logistically to have treatments. Jared does not believe everyone will be better off, but does think minimally invasive surgery will inflect higher as Americans are able to recover from within the confines of their homes without the pressure to rush back to work (a physical location). Eliminating this hurdle from the equation may be significant and the Medtech Companies are already seeing their businesses 70-80% of the way back to what would be considered to be “normal” or base levels. If he is correct in his thesis, once flat growth is achieved, there will be further upside to numbers as psychology continues to shift.
Nine stocks are listed as potentially benefiting from the paradigm shift. Here we picked five with outstanding growth prospects and potential catalysts. While all are rated Outperform at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This is one of the top pharmaceutical stock picks across Wall Street, and the Allergan acquisition is a huge positive. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.
One of the biggest concerns with AbbVie is what might happen eventually with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. The company was concerned, so last June it announced that it has agreed to pay $63 billion for rival drugmaker Allergan, the latest merger in an industry in which some of the biggest companies have been willing to pay a high price to resolve questions about their future growth. The purchase officially closed in May of this year.
AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge.
Shareholders receive a 5.42% dividend. Jefferies has a $107 price target for the shares, but the Wall Street consensus target is $109.12. AbbVie stock closed trading on Friday at $86.12.
This top medical technology company’s stock has remained on a slow and steady grind higher over the past five years. Boston Scientific Corp. (NYSE: BSX) develops, manufactures and markets medical devices that are used in interventional cardiology, peripheral interventions, vascular surgery, electrophysiology, neurovascular interventional, oncology, endoscopy, urology, gynecology and neuromodulation.
The company recently announced it has initiated a controlled launch of the ACURATE neo2 Aortic Valve System in Europe. This next-generation transcatheter aortic valve implantation technology is a new platform designed with a number of features to improve upon the clinical performance of the original ACURATE neo platform. Compared to the previous generation device, the ACURATE neo2 valve system also has an expanded indication for patients with aortic stenosis (with no specified age or risk level) who are considered appropriate candidates for the therapy by their heart team, including a cardiac surgeon.
The Jefferies price target of $46 is in line with the $46.29 consensus target. Boston Scientific stock closed Friday at $38.48.
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This medical technology giant is a solid pick for investors looking for a safe position in the health care sector. Medtronic PLC (NYSE: MDT) develops, manufactures, distributes and sells device-based medical therapies to hospitals, physicians, clinicians and patients worldwide.
The company announced earlier this summer that Blackstone’s life sciences division would invest $337 million into the research and development of its diabetes device technologies. Under the terms of the agreement, Medtronic will receive funding for four diabetes programs over the next several years. Medtronic’s engineering, clinical and regulatory teams will conduct the development work for the programs.
Blackstone’s investment is sought to pull forward specific programs for its diabetes pump and continuous glucose monitoring pipeline devices that aim to address unmet patient needs. If the programs are successful, Medtronic will pay royalties that are expected to be in the low- to mid-single-digit range as a percentage of sales.
Medtronic stock investors receive a 2.23% dividend. The $120 Jefferies price target compares to the $115.83 consensus target and the most closed close at $101.96.
This leading medical devices company is a big beneficiary in the aging of America thesis. Stryker Corp. (NYSE: SYK) operates in two business segments. Its orthopedic implants business produces implants used in joint replacement, trauma, spine and craniomaxillofacial procedures. The MedSurg segment produces surgical equipment (other than orthopedic hardware), as well patient handling and emergency medical equipment.
The company is finishing a cash tender agreement to acquire 100% of the issued and outstanding shares of Wright Medical Group. Founded in 1950 and with global sales reaching $1 billion, Wright Medical Group has a presence in upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets. The acquisition of Wright Medical is expected to complement Stryker’s trauma and extremities business while also strengthening the latter’s position in this super-high growth silo.
Shareholders receive a 1.10% dividend. Jefferies has set a $225 price target. The consensus target is $218.23, and the last Stryker stock trade on Friday was reported at $208.30.
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This large-cap medical devices play may be better suited for more conservative growth accounts. Zimmer Biomet Holdings Inc. (NYSE: ZBH) designs, manufactures and markets musculoskeletal health care products and solutions globally.
The company provides orthopedic reconstructive products, such as knee and hip replacement products. Its SET products include surgical, sports medicine, biologics, foot and ankle, extremities and trauma products. Its spine products included medical devices and surgical instruments. It has face and skull reconstruction products, as well as products that fixate and stabilize the bones of the chest to facilitate healing or reconstruction after open heart surgery or trauma, or for deformities of the chest.
Zimmer Biomet also offers dental products, including dental reconstructive implants and dental prosthetic and regenerative products, and bone cement and office-based technology products. The company’s products and solutions are used to treat patients suffering from disorders of, or injuries to, bones, joints or supporting soft tissues.
Shareholders receive just a 0.72% dividend. The Jefferies price target is $167. The consensus target is $149.44, and Zimmer Biomet stock closed at $137.69.
These five high-conviction medical technology health care ideas from Jefferies all make sense for investors looking to gain exposure to a sector that should continue to do well during the fourth quarter, into 2021 and for years to come, given the aging population both here and around the world.