Medtech has been a highly profitable area for investors. As the space matures and becomes more competitive, however, investors should be more careful when selecting stocks in this high-growth space.
For the past five years, for example, industrial giants like it Medtronic They have lagged the broader market in terms of capital appreciation due to headwinds from legacy portfolios, and emerging device makers such as diabetes care companies Dexcom They have generated life-changing profits for shareholders.
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Armed with this background, I think the diabetes specialist Insulate (PODD 1.93%) and a surgical instrument company received (CNMD 1.39%) They are poised to become two of the top performers in medtech in 2023. Here’s why.
Insulate: The best rated insulin pump franchise
Insulate, a diabetes specialist, 2022 has been an unusually bright spot in the medtech stock space. Most medical device companies have taken a big haircut in 2022, with Insulate shares up a healthy 14.5% this year.
Insulate Countermeasures America’s next-generation insulin pump device, the OmniPod 5. The OmniPod 5 is a tubeless insulin pump powered by the integration of a so-called “artificial pancreas” device into the DexCom series of glucose monitoring devices.
The OmniPod 5 launch drove Insulate’s US pump sales up 42% in the third quarter of 2022, compared to the same period a year ago. Perhaps more importantly, Wall Street expects the diabetes specialist to continue posting stellar top-line growth over the next several years, as the OmniPod 5 takes market share away from competitors and helps boost insulin pumps overall.
In addition to Insulate’s organic growth, some analysts clearly speculate that the company could be acquired due to its best-in-class insulin pump franchise. The long and the short of it is that Medtronic or another struggling medtech giant could simply decide to buy this innovative platform, rather than trying to capture it.
Now, the downside with Insulate is that the company’s shares are currently falling in line with Wall Street’s fair value estimates as of this writing. That’s not to say the medtech company’s stock won’t go up, but that further appreciation will depend on investor sentiment (rather than the company’s fundamentals).
Conmed: High value game
ConMed, a medtech company that primarily focuses on surgical instruments and equipment, has turned into a bona fide stock in 2022. Thanks to the negative effects of Covid-19, an unfavorable macroeconomic environment and temporary disruptions due to the implementation of new warehouse management software, shares of the surgical equipment company have fallen a staggering 38% this year.
ConMed management has taken decisive action to overcome these key headwinds. For example, in 2022, the surgical metech company acquired both In2Bones Global and Biorez.
Coupled with an expected rebound in its core surgical business, these two acquisitions are expected to help boost Conmed’s top line by an impressive 9.5% in 2023. The net result is Comet shares trading at a minimum of 2.27 times 2023. That’s currently one of the lowest valuations in the entire meditech space.
What’s the catch? A recent restoration in this case 2023 will depend on broader market conditions. Value stocks, after all, have failed to catch on with nervous investors in this difficult macroeconomic climate. That being said, ConMed runs a fundamentally strong business, and these latest acquisitions will only increase its long-term value.
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