Hedge Funds Like These 6 Medical Suppliers During Obamacare Rollout

James Dennin, Kapitall: We've heard politicians talking about the Medical Device tax – but what are hedge fund managers saying?

Even though the government shutdown is over, we're still not done hearing about Obamacare. The Affordable Care Act has been plagued by disgruntled state legislatures, technology glitches on major websites, and political infighting about one of the most controversial parts of the bill: the medical devices tax. 

[Read more on Obamacare from Kapitall: Hedge Funds are Buying 8 Healthcare Stocks Rallying off Obamacare]

The Medical Device Tax was originally designed to provide roughly $40 billion dollars of Obamacare funding over the next few years.

But an extremely cohesive lobbying effort, and the scattered geographical distribution of the industry - which employs people in many conservative and liberal districts alike - cut that number in half before the law went into effect. This was also one of the signature demands of Republicans in their most recent effort to delay the bill.

With prominent Democrats such as Evan Bayh (former Senator from Indiana) and Joe Manchin (Senator from West Virginia), speaking out very publicly against the tax, and with renewed controversy swirling around the law yet again - the medical device tax could be a key area of compromise should the President actually be forced to make concessions.  

In addition, with some parts of the law performing poorly in certain, usually rural areas where there are fewer insurers, a lot of people who are more optimistic about the law are turning to technology as a way to bring down the costs.

Maybe you have noticed your local doctor's office going paperless. Meanwhile camp counselors and teacher's aides have been trained to administer adrenaline shots and automatic defibrillators – things that used to be done by doctors. 

Investing ideas

Regardless of whether the tax is repealed or not – medical devices and their industry have an important role to play in determining how the Affordable Care Act's rollout continues. It's also an important example of why America's healthcare system is so unique – the ingenuity produced by a healthy medical device sector is one of the major benefits of a private health industry.

We decided to look for investing ideas among medical device manufacturers. There are a lot – about eighty that trade on the major US exchanges. We searched for those experiencing spikes in institutional purchases over the course of the last quarter of at least 7% - when controversy around the law reached its crescendo.

If the tax is repealed or rolled back, these companies could potentially benefit, although a full-on repeal of the tax is unlikely. 

Still, these companies are earning extra attention from hedge funds in a sector that has already been the subject of national scrutiny. Maybe individual investors should pay attention as well. 

Click on the interactive chart to view analyst ratings over time.

Do you see investing opportunities in the medical device industry? Use the list of six stocks below as a starting point for your own analysis. 

1. Cutera, Inc. ( CUTR): Engages in designing, developing, manufacturing, marketing, and servicing laser and other light-based aesthetics systems for practitioners worldwide. Market cap at $149M, most recent closing price at $10.12.

Net institutional purchases in the current quarter at 977.9K shares, which represents about 7.54% of the company's float of 12.97M shares. 

Largest Holdings: Dimensional Fund Advisors LP (7.95%) and Lyon Street Capital, LLC (6.54%). 
 

 

2. Cynosure, Inc. ( CYNO): Develops, manufactures, and markets aesthetic treatment systems to the dermatology, plastic surgery, and general medical markets. Market cap at $410.91M, most recent closing price at $24.70.

Net institutional purchases in the current quarter at 1.7M shares, which represents about 8.48% of the company's float of 20.05M shares.

Largest Holdings: Next Century Growth Investors LLC (7.16%) and Wells Fargo & Company (4.89%).
 

 

3. GenMark Diagnostics, Inc. ( GNMK): Operates as a molecular diagnostics company primarily in the United States. Market cap at $392.58M, most recent closing price at $12.31.

Net institutional purchases in the current quarter at 2.3M shares, which represents about 7.63% of the company's float of 30.15M shares.

Largest Holdings: FMR, LLC (15.02%) and Price (T.Rowe) Associates Inc (11.89%).
 

 

4. Nxstage Medical, Inc. ( NXTM): Engages in the development, manufacture, and marketing of products for the treatment of kidney failure, fluid overload, and related blood treatments and procedures in the United States. Market cap at $822.49M, most recent closing price at $13.70.

Net institutional purchases in the current quarter at 4.6M shares, which represents about 8.77% of the company's float of 52.46M shares.

Largest Holdings: Deerfield Management (6.45%) and Wells Fargo & Company (6.04%).
 

 

5. ResMed Inc. ( RMD): Engages in the development, manufacture, and distribution of medical equipment for treating, diagnosing, and managing sleep-disordered breathing and other respiratory disorders. Market cap at $8.15B, most recent closing price at $57.11.

Net institutional purchases in the current quarter at 33.1M shares, which represents about 23.66% of the company's float of 139.88M shares.

Largest Holdings: Westpac Banking Corporation (18.93%) and Capital Research Global Investors (5.97%). 
 

 

6. The Spectranetics Corporation ( SPNC): Designs, manufactures, and markets single use medical devices used in minimally invasive surgical procedures within the cardiovascular system in conjunction with its proprietary excimer laser system, the CVX-300. Market cap at $727.69M, most recent closing price at $18.77.

Net institutional purchases in the current quarter at 7.7M shares, which represents about 19.21% of the company's float of 40.09M shares. 

Largest Holdings: Oak Ridge Investments, LLC (3.69%) and FMR, LLC (3.45%). 
 

 

 

( List compiled by James Dennin, a Kapitall Writer. Analyst recommendations sourced from Zacks Investment Research. All other data sourced from Finviz.)

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