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4 MedTech Underperformers Poised for a Turnaround in 2021

The pandemic has been wreaking havoc on the U.S. economy since March 2020, making it one of the greatest recessions since the Great Depression of 1930s. During this entire process of economic hullabaloo and public health uncertainty, many once-market-beating stocks slipped to their all-time lows and are now trading at a massive discount.

With the emergence of a more infectious strain of COVID-19 and lack of clarity related to the full vaccination distribution time line, the challenges to the economy are likely to last for at least the next few months of 2021. However, with the initiation of vaccine rollout, signs of recovery are also quite prominent. We also note that, the U.S. economy is already on its way to recovery as the current dollar GDP increased 38% in the third quarter of 2020.

At this point of time, many market watchers are of the belief that with this rebound, 2021 will finally become the year when all the beaten-down discounted stocks will take a sharp upturn and outperform the traditional growth stocks.

MedTech’s Pandemic Snapshot

The MedTech sector registered a severe setback in stocks which are dependent on non-essential procedures. Orthopedic and cardiovascular companies, which majorly depend on surgical procedures, were one of the worst-affected by the widespread stay-at-home orders and postponement of elective surgical procedures due to fear of contracting the infection. A notable example of such a stock is renowned cardiovascular player Cardiovascular Systems, Inc. CSII, which put up dismal performances due to the pandemic-led deferral of procedures. Over the past year, this stock has lost 14.7% against the industry’s 3.7% rise.

However, the MedTech sector had put up mixed results as it gained from stocks which were boosted by their pandemic-led performances like companies engaged in diagnostic testing and ventilator production. A notable example is renowned sleep disorder and breathing solutions provider ResMed Inc. RMD. The company’s business was significantly boosted by strength in demand for ventilators and ventilation mask systems. Over the past year, the company’s share price has surged 32.6% compared with the industry’s 3.7% rise.

Investing in Value Stocks: Best Strategy for Long-Term Benefit

The pandemic-led panic sell-offs dragged down the prices of even fundamentally strong MedTech stocks and have pushed them into the Value territory through 2020. However, with the economy gradually gaining ground after the pandemic-led recession, it would be prudent for investors to scoop up these dirt-cheap fundamentally strong stocks. It is to be noted that during the pre-pandemic time, most of such stocks were actually expensive to buy based on their otherwise robust long-term growth parameters.

Given that fundamentally-sound stocks are now available at a cheaper rate, it will be prudent for investors to consider such stocks for long-term benefits. Notably, these stocks are currently available at never-seen-before prices.

4 Stocks to Buy

Listed below are four companies that investors can consider during these trying times.

The first company that investors can consider is well-known manufacturer and distributor of medical equipment used in non-acute care settings, Invacare Corporation IVC. This Zacks Rank #2 (Buy) company, having a Value Score of B, launched AVIVA FX – MPS Maxx Multi-Position Power Standing System wheelchair, available through Motion Concepts, a division of Invacare, in November 2020.

Its P/B ratio stands at an impressive rate of 1.1 compared with the industry’s 5.2. Further, its P/S ratio stands at 0.4 compared with the industry’s higher ratio of 3.7. The stock gained 37.1%, underperforming the industry’s 43.3% rise since April till December 2020-end. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our next pick is key integrated provider of products and services for dialysis patients, Fresenius Medical Care AG & Co. KGaA FMS. This Zacks Rank #2 company, with a Value Score of A, has made available the Seraph 100 Microbind Affinity Blood Filter from ExThera Medical Corporation in several European countries this month.

Its P/B ratio stands at 1.6 compared with the industry’s 5.6. Further, its P/S ratio is 1.2 compared with the industry’s higher ratio of 6.9. Over the past year, the stock has gained 7.7% versus the industry’s 23.9% rise.

The third stock which investors can focus on is renowned dental player, Henry Schein, Inc. HSIC. It has a Zacks Rank #3 (Hold) and a Value Score of B. The company, this month, completed its joint venture with Casa Schmidt, S.A. to advance their mutual goal of helping health care professionals operate more efficiently. Again this month, Henry Schein acquired majority ownership position in Prism Medical Products, LLC (PRISM), thereby foraying into the huge market for home medical equipment and supplies.

Its P/B ratio is 2.7 compared with the industry’s 5.2. Further, its P/S ratio is 1.1 compared with the industry’s 3.7. Over the past year, the stock has lost 0.8% versus the industry’s 16.4% gain.

Our final pick is a key commercial laboratory services provider, Quest Diagnostics Incorporated DGX, which currently has a Zacks Rank #3 and a Value Score of A. The company, this month, entered into an agreement with the Centers for Disease Control and Prevention to provide genomic sequencing to identify new mutations in and patterns of transmission of the COVID-19 causing SARS-CoV-2. In December 2020, Quest Diagnostics announced a strategic partnership with healthcare technology company, Ro, to add diagnostic capabilities and lab testing to Ro's vertically integrated primary care platform.

Its P/B ratio is 2.6 compared with the industry’s 4.4. Further, its PEG ratio stands at 0.4 compared with the industry’s 3. Over the past six months, the stock has lost 1.9% against the industry’s 16.9% rise.

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Quest Diagnostics Incorporated (DGX): Free Stock Analysis Report
Fresenius Medical Care AG & Co. KGaA (FMS): Free Stock Analysis Report
ResMed Inc. (RMD): Free Stock Analysis Report
Henry Schein, Inc. (HSIC): Free Stock Analysis Report
Invacare Corporation (IVC): Free Stock Analysis Report
Cardiovascular Systems, Inc. (CSII): Free Stock Analysis Report
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