Medical Devices, Equipment, & Supplies
While the healthcare equipment and supplies industry has underperformed the broader healthcare sector for about the past five years, remarkable advancements are taking place in this oft-ignored corner of the market. There are roughly 50 main players in the industry, including the likes of St. Jude Medical (purchased by Abbott Labs in Jan, 2017), Boston Scientific, and Edwards Lifesciences. Only 13 of these companies are listed in the S&P 500, but most are in the S&P 1500 Index—a great place to search for neglected stocks waiting to break out. While we like to pick our favorites, investors can take advantage of a basket of healthcare equipment and supplies companies by buying XHE, the SPDR S&P Health Care Equipment ETF. |
The following headlines have been reprinted from The Penn Wealth Report and are protected under copyright. Members can access the full stories by selecting the respective issue link. Once logged in, you will have access to all subsequent articles.
WRBY $54
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Warby Parker, public via a direct listing, pops 36% out of the gate
(29 Sep 2021) It takes a lot of confidence for a management team to take their company public via a direct listing. It is, generally speaking, on the opposite end of the spectrum from those companies which go public via a SPAC. A direct listing, which is tremendously more cost effective than the traditional IPO route, is based on the premise that a company is so well known—and liked—by the public that it doesn't need to pay for the dog and pony show put on by the likes of a Goldman Sachs or JP Morgan. Of course, if management got the pulse of investors wrong, opening day can be a disaster. Fortunately for Warby Parker (WRBY $54), that was not the case on the eyewear maker's first day of trading. From a reference price of $40, shares actually opened up 36% from that price, hitting $54.72 within minutes. At its current price, the company is valued around $7 billion, or solidly within mid-cap territory. While some companies have delayed their debut due to market volatility, it appears to be full steam ahead for Warby. And, despite September's (rather typical) volatility, we still expect a record number of companies to go pubic in the fourth quarter of the year. Warby Parker is one of the most well-known names in the eyewear business, and we love its omnichannel business model. That being said, the reference price of $40 seems like a good point to consider jumping into the shares. In other words, wait for them to fall by about one-third and make sure they fit within the respective portfolio. |
JNJ
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J&J actually gives guidance, raises dividend, projects virus vaccine
(16 Apr 2020) Last year, most of the talk surrounding health care giant Johnson & Johnson (JNJ $109-$146-$155) involved the firm's ongoing litigation. Now, after bouncing back incredibly well from the virus pounding the shares took (they are now flat YTD), the company has shifted the narrative to more positive talking points. First topic: guidance. While many companies have yanked their guidance for the year due to the pandemic, J&J said the firm expects to see earnings in the range of $7.50 to $7.90 per share. While lowered from previous expectations, those figures are higher than what the Street expected. Second topic: dividend. It is almost becoming heresy for a company to talk about dividends as trillions of taxpayer dollars begin to head out of the Treasury's door to buttress the financial situation of individual Americans and US corporations. Not only did J&J bring the topic up, they announced a 6% increase in the quarterly dividend rate. Third topic: virus vaccine. The company said it plans on being "first to human" with its coronavirus vaccine trials, set to begin as soon as this September. If they go as planned, the company believes it can produce between 600 million and 900 million doses by then end of Q1, 2021. Then, according to the company's CFO, that number can ramp up to one billion doses annually. Shares rose 5% as the earnings conference call was taking place. |
SDC
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SmileDirectClub soars for second time in a week on news it will sell aligners directly to dentists. (14 Jan 2020) Last week we mentioned what a tough time it has been for orthodontics equipment distributor SmileDirectClub (SDC $8-$12-$21) since going public last year. We also said how much we liked the company's deal with Walmart (WMT) to sell a new line of oral care products to the retailer; a deal which made the company's share price pop 21%. On Tuesday, shares of SDC were trading up 16% following another major announcement from management: the company will begin selling its aligners directly to dentists. Another smart move by the company, but what is most interesting about this story is the relationship between SmileDirectClub and Align Technologies (ALGN $170-$291-$298), which had been the key supplier of clear aligners to SDC, and an owner of 17% of the company's outstanding shares. As part of that deal, SmileDirect would only sell its aligners directly to consumers—a move which had alienated dentists. The company said it was no longer beholden to that 2016 contract (ALGN no longer owns the 17% stake), and that it would make its own aligners at the firm's manufacturing facility in Antioch, Tennessee. While SDC shares were spiking, ALGN shares were off around 2% on the news. Will dentists be willing to embrace a former competitor and sell the SmileDirectClub aligners? Considering the aligners will now come with an in-office option, meaning all work can be done under the supervision of the family dentist, our guess is yes. Align appears to be the one left out in the cold.
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SDC
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SmileDirectClub soars after announcing suite of oral care products for Walmart. (07 Jan 2020) It has been a rough slog for SmileDirectClub (SDC $8-$10-$21) since the orthodontics equipment maker went public back in September of 2019. After coming out of the gate at $23, shares quickly dropped to $16.67 by the end of IPO day. From there, it was a relatively straight shot down to $7.56 per share, a mark hit on 12 Dec as the rest of the market was in rally mode. Now, however, the company's shares received a much needed boost—jumping 21% in one day—after announcing a new line of oral care products which will be available exclusively at Walmart (WMT). While the company won't offer its primary product, the teeth aligners, the line will include an electric toothbrush, a premium teeth whitening system (complete with LED light), toothpastes, and an ultrasonic UV cleaner. Analyst firm Craig-Hallum initiated coverage of SDC with a Buy rating and a $20 price target on the shares. We were about as down as one could be on shares of SDC, considering the copious field of competitors in the space. That being said, we love this strategic move to diversify their business by landing Walmart as a customer. We don't have the conviction to pull the trigger and buy shares just yet, despite the $10 price tag, but Craig-Hallum might have made a brilliant call. Time will tell.
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ALGN
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After skyrocketing, it has been a super-rough year for the maker of Invisalign®. (25 Jul 2019) The business model seems brilliant: instead of parents paying out thousands upon thousands of dollars to the orthodontist, or adults being forced to wear braces to work, create a nearly-invisible teeth-aligning system for a fraction of the price. And, in fact, Align Technology (ALGN $178-$200-$399), maker of the Invisalign® system, saw its share price go from $50 five years ago to $400 by the fall of 2018. That was a nice ride up for investors, but anyone discovering the stock a year ago would be hurting—shares have been cut nearly in half since last July, falling a full 27% on Thursday alone. The somewhat bizarre aspect to the massive drop in share price is the company's Q2 beat on both the top and bottom lines, earning $147 million (+39% y/y) on $601 million in sales (+22.5% y/y). The breakdown occurred, however, as analysts began poring over the post-earnings press release. Laying the blame on weakness in China and slower growth in North America, CEO Joe Hogan greatly muted expectations for the third quarter. The first excuse is simply that: an excuse. The second complaint has us befuddled: Hogan said that there appears to be "a little more reticence on consumers to spend." We haven't seen a pullback in spending by the US consumer anywhere else. Could it be that new entrants are finally eating into Invisalign's market share? This stock was priced for perfection, and with a number of patents expiring, expect a flood of competition to put even more downward pressure on the shares. Don't touch it.
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DHR
XRAY |
Medical device maker Danaher surges on second-quarter earnings, spinoff plans. Danaher Corp. (DHR $79-$103-$106) is a $72 billion, US-based manufacturer of healthcare-focused instruments and supplies. The company's four main business units are: Life Sciences, Diagnostics, Dental, and Environmental & Applied Solutions. Two news releases helped the company surge around 5% on Thursday—a good earnings report and a planned spinoff. For the second quarter, DHR saw its earnings rise 20%, to $638 million, on the back of a 6% jump in core revenue growth. During the earnings call, the company also announced plans to spin off its dental business into a separately-traded entity. Major dental equipment maker Dentsply (XRAY) shrugged off the news, with those shares rising around 3% on the day. The medical devices industry continues to be our favorite play in the health care sector.
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SYK
BSX |
Boston Scientific spikes on takeover bid by Stryker. Two of our favorite medical device makers may soon become one. Stryker (SYK $138-$170-$180), the $65 billion maker of orthopedic, neurotechnology, and spinal devices, has made an unsolicited bid to buy $45 billion Boston Scientific (BSX $25-$34-$37), best known for its cardiovascular line (think drug-eluding stents) of products. Recent mergers in the medical device industry have created a red-hot environment as a handful of top players scramble to take, or retain, market share. Last year alone, Medtronic (MDT) paid $50 billion for Tyco spinoff Covidien, and Becton, Dickinson & Co. (BDX) bought CR Bard (think of those painful "urology-based" commercials we are subjected to, typically during the dinner hour) for $24 billion. There could be an interesting play here: BSX spiked over 7% on the rumor, while Stryker fell 5%. (Still, check out the sky-high valuations before investing.)
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ABT
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Putting stop loss on our Abbott Labs
(09 May 2018) Since purchasing Abbott Labs (ABT $43-$59-$65) in the Penn Global Leaders Club, it has risen 116% and surpassed our initial price target of $50. While we don't normally put stops on holdings in the PGLC, and while we still like this company's outlook, the 225 p/e is making us nervous. Based strictly on valuation, we are placing a $58 stop loss on the position to protect our gains. |
ABT
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Abbott Labs gets FDA approval on world's smallest heart valve
(06 Mar 2018) We were bummed when Abbott Labs (ABT $42-$61-$65) bought St. Jude Medical last year, only because St. Jude was one of our favorite medical device makers to trade. It looks like Abbott is already reaping the benefits from that acquisition. The FDA just approve the firm's 15-mm (the world's smallest) heart valve for newborn pediatric patients with heart defects. St. Jude had larger sizes of the Master Series Heart Valve on the market for older patients since 1995. Abbott is stock #1 in the Penn Global Leaders Club. |
AliveCor
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Kardia Mobile: the coolest medical product of the year (that may just save your life)
(28 Nov 2017) Technology is bringing about incredible change to the world around us, and nowhere are those technological advances more prevalent—or critical—than in the health care arena. In that vein, privately-held AliveCor just released a landmark device in the realm of personalized cardiovascular care. Kardia Mobile is being marketed as "your personal EKG," with the ability to make a medical-grade EKG reading in just 30 seconds, displaying the results and giving you a health update right on the screen of your smartphone. Think of the freedom and peace-of-mind this little device will be able to provide to citizens around the globe. The cost for the device? $99. And there are no ongoing service fees required. Truly remarkable. Check out the product at https://www.alivecor.com. |
LAKE
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Under the Radar: Lakeland Industries
(19 Oct 2017) Lakeland Industries (LAKE $10-$15-$17) manufactures and sells high-performance safety workwear, chemical protective clothing, flame and heat resistant clothing, and other accessories to workers around the world who function in a potentially hazardous environment. At just $125 million in size, the company pulls in nearly that much in annual revenues, and sports a gross profit margin of 36.35%—very healthy for the industry. With quarterly free cash flow of $1.7 million and a P/E of 19 (less that of the S&P 500), the company looks poised to make some nice gains going forward. |
ALGN
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Mattel getting knocked out of Nasdaq-100 by Align
(16 Oct 2017) The makers of Invisalign, a series of virtually-invisible teeth aligners, is about to knock toymaker Mattel (MAT $14-$16-$33) off of the cap-weighted Nasdaq-100 stock index. Effective 23 October, Align Technologies (ALGN $83-$194-$196) will become the newest member of the index, giving the already-soaring, $16 billion medical device maker another boost. Invisalign treatments are similar in cost to traditional braces, and are covered by most dental insurance plans. |
IART
JNJ |
Under the Radar: Integra Lifesciences
(28 Sep 2017) Integra Lifesciences (IART $38-$50-$56) is a medical device maker specializing in regenerative medicine, specifically burn and deep tissue wounds, and dural repair products. (Dura mater is the outermost of three layers surrounding the brain and spinal cord.) The company operates in two primary divisions: the Specialty Surgical Solutions unit, and the Orthopedics and Tissue Technologies segment (think burn victim care). Yesterday the FTC approved Integra’s purchase of Johnson & Johnson’s (JNJ) Neuro Division for $1.05 billion in cash. With a market cap of under $4 billion, IART had 2016 revenues of $1 billion and a net income of $75 million. A very well-run company in a niche medical market with a critical need. Certainly worth keeping an eye on. |
ABT
DXCM |
FDA approves Abbott device for prick-less blood sugar monitoring
(28 Sep 2017) The medical device company that holds the number one position in the Penn Global Leaders Club, Abbott Labs (ABT $37-$54-$53), punched through a new high today, up 3%, on news that the FDA has approved the company’s “FreeStyle Libre Flash Glucose Monitoring System” (good luck with that acronym). This system continually monitors blood sugar levels without the need to draw blood via a skin prick. That is absolutely revolutionary for millions of diabetes sufferers in the US alone. It is able to perform this feat via a sensor stuck on the body, with the information being transmitted with the wave of a mobile reader. (Can anyone say Apple Watch?) The big loser with this decision was ABT competitor Dexcom (DXCM $43-$45-$90), which was down about 35% on the news. |
GMED
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Penn member Globus Medical receives FDA approval, pops 6%
(17 Aug 2017) Medical device maker and member of the Penn Intrepid Trading Platform Globus Medical (GMED $19-$31-$34) jumped 6% on Thursday following the announcement that the FDA had approved the company’s robotic guidance and navigation system known as Excelsius GPS. The Excelsius system will be used with Globus Medical implants and instruments for minimally invasive orthopedic and neurosurgical procedures. The stock is up 25% since entering the Intrepid. |
(20 May 16) Today we purchased a major medical equipment and supplies company within the Penn Global Leaders Club. This company is a global leader in the fluid and drug delivery system market. Clients/Members see the Trading Desk for details.