NEW YORK (TheStreet) -- The health care equipment and supplies may not seem like the sexiest of places to invest, but the sector has several contributors to its growth, affording it a positive outlook, according to TheStreet Ratings.
Baby boomers' shift into retirement age, Obamacare and people just living longer overall have "expanded demand for many products supplied by this industry ranging from medical devices for serious conditions that, more often than not, affect the older population (such as pacemakers and stents) to devices and surgeries that help improve the quality of life (such as joint replacements and laser eye surgery)," TheStreet Ratings says about the sector.
Over the past year, the Nasdaq Health Care Index is up 24.9% compared to the Nasdaq Composite Index 13.4%. In 2015, the Nasdaq Health Care Index is up 4.9% this year compared to the Nasdaq Composite Index which is down 2.69%.
Health Care Equipment & Supplies industry encompasses two main lines of business: supplying health care equipment to hospitals and patients in outpatient care; and creating new and more technologically advanced medical equipment to improve the efficiency and accuracy of patient care.
TheStreet analyzed which small-cap health care stocks present the best opportunity for investors looking for exposure to the sector.
TheStreet Ratings, TheStreet's proprietary stock rating tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
The five stocks on the list are all small-cap stocks (market capitalizations below $1 billion) and have a "buy" rating, with a B- or better grade from TheStreet Ratings.