5 MedTech Stocks to Beat Tax Hazards With Positive Returns

The latest $1.5-trillion tax reform plan has been a landmark achievement for President Trump. As usual, in its initial stage, the nation gave mixed reactions on the controversial bill. While a few Americans slammed the new plan as a ‘job killer,' others found it to be ‘an excellent opportunity to fix a broken tax code.'

While the bill claims to primarily focus on the easing of tax woes for middle-class Americans, the massive cut in corporate taxes tells a different story altogether. In fact, a research report by CNBC reveals that Frank Clemente, executive director of Americans for Tax Fairness, slammed the new tax code as a "a big giveaway to millionaires and corporations," neglecting the ones who are in real need of it.

Now, it is to be seen whether the bill is fated to meet an overall failure or it gets to fulfill its promises of ‘inclusive economic growth’.

What’s in it for MedTech?

“They are cutting taxes on the wealthy and taking health care away from millions,” — Senate Democratic Minority Leader Chuck Schumer.

Customer Base to Shrink

While the reduction in corporate taxes will encourage the development of expensive cutting-edge MedTech products, the question over its profitability looms large. This is because with a higher number of uninsured and lesser deductions on healthcare costs, the industry is likely to witness a shrinking customer base, indicating a decline in demand for expensive medical procedures and devices.

Tax Decision on MedTech Devices Impending

The MedTech community has been hopeful since Trump proposed policies that entailed the abolition of the infamous 2.3% medical device sales tax. Such high taxes forced companies to lay off employees, limit research and development activities, and reduce capital investment.

Furthermore, AdvaMed, a leading American medical device trade association, had referred to the medical device tax as a ‘significant drag on medical innovation’. Notably, small device companies suffered the most. Amid such worries, a repeal of the tax paradigm is expected to resume an aggressive pace of hiring and investment among the 9,000 America-based medical device manufacturers, instilling investor confidence in the stocks.

Per data provided by the medical device trade group (in a Ken Blackwell article published by The Daily Caller), the partial two-year repeal of the MedTech tax had resulted in a roughly 83% rise in research and development (R&D) investments by MedTech players. The comeback of the tax in 2018 will lead to a $15 billion rise in taxes, largely discouraging R&D activities. Undoubtedly, the future of the U.S. MedTech industry depends on the Republicans’ decision on the 2.3% medical device tax.

Key Picks

Per Trump, the democrats have established a “lousy healthcare” model. However, with a complete medical device tax renovation, it is being widely believed that a new set of streamlined rules will benefit the medical device space.

Meanwhile, stocks with strong fundamentals will give you assured returns amid this tax conundrum. We have zeroed in on five stocks that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) and boast strong fundamentals. Notably, all these stocks promise long-term expected earnings growth rate of 10% or more.

IDEXX Laboratories, Inc. IDXX

Headquartered in Delaware, NJ, IDEXX is a developer, manufacturer and distributer of products and services, primarily for the companion animal veterinary, livestock and poultry, water testing and dairy markets. The company also sells a series of portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market.

The company continues to demonstrate solid growth globally on strong international expansion. Management’s innovation-based global strategy is leading to CAG Diagnostics growth. Notably, IDEXX expanded its cloud technology portfolio with the addition of rVetLink. Solid organic revenue growth along with a raised guidance for 2017 buoy optimism.

The stock has a long-term expected earnings growth rate of 20.4%. IDEXX has a Zacks Rank #2. Over the last year, IDEXX has added 29.6%, higher than the broader industry’s gain of 24.5%.

 

 

Luminex Corporation LMNX

Luminex develops, manufactures and markets proprietary biological testing technologies with applications throughout the life sciences and diagnostics industry. The company’s open-architecture multiplexing xMAP (Multi-Analyte Profiling) technology is sold worldwide and is used by leading research laboratories as well as major pharmaceutical, diagnostic and biotechnology companies for conducting biological tests.

Luminex’s Assay business is likely to be its key growth driver over the long term. The company also witnessed favorable tidings at the regulatory front in the third quarter. In this regard, the recent CE-IVD mark for the ARIES Norovirus Assay, the FDA approval of ARIES C. difficile Assay and the reimbursement approval of VERIGENE assay in Japan are noteworthy. Luminex is on the verge of completing its clinical study for Group A Strep and is close to submitting the same for FDA review.

The stock has a long-term expected earnings growth rate of 16.3%. Luminex has a Zacks Rank #1. Over the last month, Luminex has returned 7.7%, much higher than the broader industry’s 3.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

 

Masimo Corporation MASI

Irvine, CA-based Masimo develops, manufactures and markets a family of non-invasive monitoring systems. The company’s flagship product — Signal Extraction (SET) Pulse Oximetry — is used to monitor blood oxygen saturation levels and protect against hypoxemia and hyperoxemia.

We believe the company's expanding product portfolio will be a key catalyst. Wider adoption of its non-invasive patient monitoring technology will help the company gain traction. Masimo’s SET pulse oximetry business represents considerable growth opportunities in international markets. Moreover, the FDA 510 (k) approval for the Radius 7 wearable and the O3 regional oximetry device are significant positives.

Masimo has a Zacks Rank #2 and promises a long-term expected earnings growth rate of 10.1%. Over the last three months, Masimo has returned 7.6%, higher than the broader industry’s 6.5%.

 

 

Align Technology Inc. ALGN

Based in California, Align manufactures and markets a system of clear aligner therapy, intra-oral scanners and CAD/CAM (computer-aided design and computer-aided manufacturing) digital services used in dentistry, orthodontics, and dental records storage.

We are encouraged by the company’s solid InvisAlign Technology prospects and growth in North America and internationally, particularly in the Asia-Pacific region. A strong summer season performance drove Invisalign growth in the global teen market. We are also upbeat about the company’s signing of a distribution agreement with Patterson Dental. The company’s receipt of two U.S. patents for SmartTrack InvisAlign Aligner material buoys optimism as well.

Align has a Zacks Rank #1, and promises long-term expected earnings growth of 28.9%. Over the last three months, the stock has returned 45.5%, way higher than the broader industry’s 5.2%.

 

 

The Cooper Companies Inc. COO

Cooper, based in Pleasanton, CA, is a specialty medical device company operating on a global basis. The company is poised to gain from an expanding product portfolio and increasing penetration in International markets. Accretive acquisitions are also a key catalyst for the long term.

The company has been seeing strong growth at its CooperVision business segment of late. Notably, the segment banks on the MyDay, Clariti and Biofinity silicone hydrogel lenses platforms. The CooperSurgical segment also delivered strong sales in the quarter. A strong guidance for fiscal 2017 instills our confidence in the stock. Cooper recently completed the acquisition of Procornea. This added a leading ortho-k technology to Cooper’s lens portfolio and marked its foray into the emerging myopia controlled markets.

The stock has a Zacks Rank #2 and an expected earnings growth rate of 10.8%. Over the last year, the stock has added 43.9%, much higher than the broader industry’s 19.9%.

 

 

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