Can These 3 High-Flying Healthcare Stocks Reach the Clouds?

It's been a pretty good year for healthcare stocks across the board, and a handful have soared to all-time highs. You shouldn't buy stocks just because they're going up, but there's a chanceZoetis Inc. (NYSE: ZTS), Baxter International Inc. (NYSE: BAX), and Intuitive Surgical, Inc. (NASDAQ: ISRG) could continue climbing.

Let's look at factors driving growth for this diverse group of health-related businesses to see which, if any, still have enough fuel in the tank to propel them even higher.

Climbing on four legs

Often overlooked, demand for animal-health products is growing faster than a newborn puppy, and Zoetis Inc.'s stock price is along for the ride.Global animal-health spending reached an estimated$34.5 billion in 2015, and by 2025 the market could swell to $58 billion.

Image source: Getty Images.

This top animal-health stockhas roughly doubled over the past three years, and it's currently near an all-time high. Impressive bottom-line growth is largely responsible for the stock's run-up. Over the past four years, trailing earnings have more than doubled to $1.72 per share, and management expects to report between $2.08 and $2.20 per share for the full year.

Since the company was spun off fromPfizer in 2013, top-line growth has been somewhat sluggish, but years of investment in research and development of new medicines has begun to bear fruit. For example, canine eczema treatment Cytopoint became the firstbiologic drug to earn FDA approval for treatment of pets last December. Cytopoint and other products exclusive to Zoetis pushed first-quarter pet product sales 11% higher than the previous-year period to $517 million.

While increased spending for the care of pets is surging, Zoetis investors will want to keep an eye on U.S. livestock sales. The recently implemented Veterinary Feed Directive requires farmers to secure written authorization from licensed vets before they can use antibiotics. In the first quarter, sales of livestock products in the U.S. slid 2% over the previous-year period to $282 million.

If pet product sales continue surging, and antibiotic sales stabilize, Zoetis stock could keep soaring.

Kidney punch

Rates of obesity, high blood pressure, and diabetes are on the rise across the globe. All three conditions tend to lead to kidney damage and raise demand for Baxter International's dialysis equipment.

Baxter's Amia cloud-enabled automated dialysis cycler. Image source: Baxter International.

Baxter is a longtime leader in the dialysis-equipment space, and rising popularity of its new automated systems for home use are cementing the company's position. The company's cloud-enabled dialysis cyclers allow healthcare providers to monitor patients remotely, and this cost-effective option is just beginning to take off. Baxter thinks its automated home systems could serve about 40% of the world's dialysis patients, but at the moment roughly 13% are taking advantage of the convenience.

While innovative product offerings are expected to keep renal-segment sales marching in the right direction over the long term, hospital product sales are surging. First-quarter U.S. sales of cyclophosphamide, a popular cancer therapy, have been under pressure since the entry of generic competition several years ago. Despite the headwind, total hospital product sales rose 7% over the previous-year period to $1.58 billion.

Now that the dust has settled following the spinoff and subsequent sale of the company's pharmaceutical operations, management is laser-focused on improving profitability. It looks like trimming unprofitable operations is working even better than expected. First-quarter adjusted earnings came inabout 61% higher than the previous-year period, which was well above the company's previous expectations.

With sales and profit margins steadily moving in the right direction, it's no wonder Baxter's shares have risen about 30.2% this year to a new all-time high. If the company can meet recently boosted full-year expectations, this high-flying stock could soar even further.

Small incisions, huge gains

Intuitive Surgical's da Vinci surgical robots have given long-term investors plenty to be thankful for. The devices have progressed from novelties to necessities in hospitals around the globe, making Intuitive Surgical one of the best-performing healthcare stocks of its time. So far this year it's risen about 41% to another all-time high, and it looks like there's still plenty of fuel in the tank.

Intuitive Surgical employs a razor-and-blades business model that has an interesting twist. Surgeons keep finding new uses for the surgical robots, and that's driving up demand for the instruments and accessories consumed with every procedure performed. As my Foolish colleague Brian Stoffel recently noted, hernia repair wasn't even on the radar in 2013, but consumables sold to perform these procedures are one of the company's leading growth drivers today.

A recent study showed hernia repair procedures performed with da Vinci robots led to significantly shorter hospital stays, at a time when U.S. hospitals are under increased pressure to reduce total costs associated with standard procedures. When you consider the long-term savings, it's no wonder hernia surgeries performed without robotic assistance are quickly becoming a thing of the past.

In the first quarter, the total number of surgeries performed with da Vinci systems surged 18% over the previous-year period, and sales of consumables rose in step with procedures. If hospitals continue to use their installed base of da Vinci systems to perform a wider array of procedures, this highflyer could soar right past the clouds into the stratosphere.

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Cory Renauer has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical. The Motley Fool recommends Baxter. The Motley Fool has a disclosure policy.