3 Medical Device Stocks to Watch

By Markets Fool.com

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Source: Intuitive Surgical

Biotech tends to create more buzz than other segments of healthcare. However, there is a part of the healthcare sector that is quietly racking up major gains that, although not as splashy as biotech, are still quite impressive. What is this under-the-radar industry? Medical devices.

There are more than 200 medical device stocks, and many of them should be winners over the next few years. Here are three medical device stocks to watch that could be among the top performers.

Edwards Lifesciences Corp.
Edwards Lifesciences is a major global player in the market for artificialheart valves and hemodynamic monitoring. The company is named after its founder, Miles "Lowell" Edwards, who co-developed the first replacement heart valve in 1958.

The company's biggest success these days stems from its Sapient line of transcatheter heart valves, or THVs. Growing THV sales have powered Edwards' stock to soar over 60% in the last 12 months. However, shares have pulled back somewhat since late April despite the company posting solid first quarter results.

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Edwards' CEOMichael Mussallem recently stated that it's "almost a golden age" for heart valve treatments. Technological advances have made heart valves safer and more effective. Edwards has led the way in these advances and should be in the catbird's seat to generate gold as the "golden age" referred to by Mussallem fully emerges.

Wall Street's consensus one-year price target for Edwards Lifesciences reflects a nearly 13% increase from the current share price. That kind of growth seems reasonable based on Sapient's success. Over the longer run, Edwards' commitment to research and development (including spending nearly 15% of revenue on R&D last year) should help this stock remain one of the medical device industry's big winners.

Medtronic plc
Thanks to its buyout of Covidien, Medtronic ranks as the biggest pure-play medical device company, boasting a market cap of $108 billion. That acquisition also became the largest tax inversion deal ever, with Medtronic changing its domicile to tax-friendly Ireland.

Medtronic's tax bracket isn't the main reason to watch this stock, though. The company is a leader in cardiac devices, including pacemakers, stents, implantable defibrillators, and heart monitoring technology. Medtronic also competes against Edwards Lifesciences and others in the heart valve market, where it is experiencing solid sales growth.

While cardiac and vascular products generate over half of Medtronic's revenue, the company claims other areas of expertise. Its Restorative Therapies Group, which includes surgical technologies, neuromodulation and spine devices, racked up sales topping $1.6 billion last quarter. Diabetes products, including insulin pumps and glucose monitoring systems, contributed another $449 million for the quarter.

Medtronic should benefit as the number of elderly in the U.S. and other countries increases over the next several years. The stock could also get a boost as the U.S. healthcare system transitions to value-based reimbursement models, since several of its technologies help patients at lower costs than alternative treatments.

Intuitive Surgical
After suffering a major drop in share prices beginning in mid-2013, Intuitive Surgical's stock mounted a comeback during the second half of last year. The robotic surgical system maker appears to have a decent shot at keeping that rebound going.

Intuitive Surgical is known for its da Vinci surgical systems, which allow physicians to remotely control robotic arms for minimally-invasive surgical procedures. The key value proposition for da Vinci is in achieving better clinical outcomes with less patient pain and disruption of regular activities than alternate treatments.

The company seems to have been making the case for that value effectively. During the first quarter, revenue was up 15% year over year, with a 13% increase in number of procedures performed using da Vinci systems.

There are several future growth opportunities for Intuitive Surgical in the years ahead. Aside from convincing more hospitals and surgeons to switch to da Vinci, the company can also expand the types of surgical procedures for which the system can be used. And with 72% of its sales still coming from the U.S., Intuitive has plenty of room to grow internationally.

Top pick
Selecting the best of these three medical device stocks is tough. All have solid potential for growth. The nod in my view, though, goes to Intuitive Surgical.

What I really like about Intuitive is that it gets around three-quarters of its total revenue from recurring items such as accessories and services. This steady cash inflow combined with strong opportunities for more uses of da Vinci make Intuitive Surgical one that investors should definitely watch.

The article 3 Medical Device Stocks to Watch originally appeared on Fool.com.

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.