2 Fundamentally Strong Medical Device Stocks to Buy Now
It can be rare to find stocks in the same industry that boast good margins, low or no debt and expectations for high earnings growth.
But if they are identified, they can continue to reward investors handsomely and consistently over an extended period of time.
Below are two stocks from the medical device industry that fit the bill. They have track records of growth and continue to be promising options for investors for the future. We also highlight an investment strategy that reaps profits in bull as well as bear markets.
1. Align Technology (ALGN) - Get Report
Align Technology is a California-based medical device company that makes and markets the Invisalign brand of invisible dental braces, as well as intra-oral scanners and digital services used in dentistry, orthodontics and dental records storage.
The Invisalign products have seen encouraging growth from a year ago, with North American shipments climbing 21% and international shipments rising 34% in the first quarter of 2016. For the second quarter, which the company plans to report on July 28, Align has forecast year-over-year growth of clear aligner case shipments of 20.7% to 22.4%.
Robust demand for the company's iTero Element scanner also contributed to 72% year-on-year growth in scanner and services revenues.
The company has shown encouraging revenue growth over the past decade and has improved its earnings per share, too. In the first quarter, Align Technology reported earnings per share of 50 cents, up 14% from 44 cents a year earlier. Over the next five years, analysts expect Align to register average annual earnings growth of 23%, significantly more than the 13% expected for the industry.
In terms of margins, Align's net profit margin of 17% also dwarfs the industry average of 9%.
Align Technology has a price-to-earnings ratio of 30, which is higher the 21 P/E of peer Dentsply International, but Align Technology's superb long-term growth prospects make it worth the price.
2. Globus Medical (GMED) - Get Report
Audubon, Pa.-based Globus Medical is a medical device company that focuses on designing and manufacturing equipment for patients with spinal ailments.
In the most recent quarter, Globus recorded revenue of $139.3 million, which was slightly below analyst estimates of $140.3 million.
According to Barclays, which initiated coverage on the stock with an equal weight rating, the company's margins and cash flow were favourable, but investments in trauma and robotics would weigh on margins and take time to "bear fruit."
The company's operating and net margins on a trailing 12-month basis were far greater than the industry averages. Like Align Technology, it has no debt on its books, allowing it to comfortably allocate funds towards expansion activities or even research and development. Another factor that works favorably for investors is the return on equity which stands at 17% vs. 7.4% for the industry.
Over at least the past four quarters, Globus Medical has either met or beat analyst estimates for adjusted EPS. Over the next half a decade, analysts expect Globus to log average annual earnings growth of 12.4%, more or less in line with the industry but higher than the S&P 500's7.5% figure.
So, while the Globus may see a bumpy ride over the near to medium term, it continues to be a solid investment option for those who can invest for the long term.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.