We recently published a list of 12 High Growth Large Cap Stocks to Buy Now. In this article, we are going to take a look at where DexCom, Inc. (NASDAQ:DXCM) stands against other high growth large cap stocks.
BlackRock highlighted that its portfolio managers are broadly optimistic about US equities. Its portfolio managers opine that there is still some expected upside potential, despite the steep US stock valuations. However, the contrast between lagging European economic growth, and stock performance, is stark. The US Fed decided to reduce the policy rate by another 25 bps in a recent meeting as the apex bank sees inflation moving closer to its target of 2%.
However, the financial conditions remain loose after a historically sharp tightening cycle. The firm believes that such an unusual backdrop strengthens its view that the environment is being dominated by structural forces and not by a typical business cycle.
Overall, the firm remains overweight on the US given the positive view on the AI theme. The valuations for AI beneficiaries have strong backing as technology companies continue to beat high earnings projections. The asset manager believes that falling inflation continues to ease pressure on corporate profit margins.
High-Single Digit Growth in S&P 500
Goldman Sachs Research’s projections for the S&P 500 Index of stocks remain broadly the same as it was before Trump’s win. As per David Kostin, the chief US equity strategist at the firm, the S&P 500 is expected to reach 6,300 in the upcoming 12 months. The researchers expect growth in EPS of 11% in 2025 and 7% in the following year. That being said, David Kostin highlighted that the estimates might change as and when the new administration’s policy agenda gets revealed. Overall, strong earnings growth is expected to fuel continued equity market appreciation into next year.
Historically, the S&P 500 index generated a median return of 4% between election day in November and calendar year-end, as per Goldman Sachs. Together with the resilience in broader economic growth data and the expectation for further rate cuts, the near-term outlook for US equities remains healthy, as per Kostin.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
US Tariffs’ Impact
Several investors remain focused on trade policy, and Mr. Trump might have plans to implement some of the tariffs without legislation. Goldman Sachs believes that Trump will impose tariffs on imports from China. These are expected to average an additional 20 percentage points. Furthermore, European companies can face tariffs. The large investment bank also highlighted that, during Trump’s previous administration, domestic-facing and defensive industries, including utilities, telecom services, and real estate, outperformed. On the other hand, the stocks of automobiles, capital goods, and technology hardware underperformed.
The company believes that M&As might increase under Trump’s presidency. Though the policy uncertainty will take time to recede, there are expectations that antitrust regulation will be more relaxed. Moreover, the continued economic expansion and higher confidence among CEOs might result in increased corporate combinations. Approximately, $4 trillion of corporate spending in the next calendar year might roughly get evenly split between returning cash to shareholders and growth investments (such as CapEx, R&D, and M&A).
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Our Methodology
To list the 12 High Growth Large Cap Stocks to Buy Now, we sifted through several online rankings and a screener. We extracted the stocks that have a healthy 5-year revenue growth and a market cap of more than $10 billion. Finally, the stocks were ranked in ascending order of upside potential, as of 12th November.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
DexCom, Inc. (NASDAQ:DXCM)
5-Year Revenue Growth: ~27.9%
Average Upside Potential: ~31.5%
Market cap as of 12 November: $29.01 billion
DexCom, Inc. (NASDAQ:DXCM) is a medical device company, which focuses on the design, development, and commercialization of continuous glucose monitoring (CGM) systems in the US and internationally.
DexCom, Inc. (NASDAQ:DXCM) rolled out Stelo CGM, its first over-the-counter glucose sensor in the US. It targets non-insulin-using Type 2 diabetes and prediabetes patients. Wall Street experts opine that this move should expand its addressable market. This roll-out demonstrates a significant step in DexCom, Inc. (NASDAQ:DXCM)’s product strategy. The move aligns with its goal of expanding the user base beyond traditional insulin-dependent patients. Also, the competitive pricing strategy for Stelo is expected to ramp up adoption, potentially offsetting challenges in other segments of the company’s business.
Moving forward, the company’s strong emphasis on product innovation and healthy position in the CGM market should act as principal growth enablers. Also, it focuses on customer experience and managing for long-term growth. DexCom, Inc. (NASDAQ:DXCM) has advanced its international product portfolio with the launches of Dexcom G7 in Australia and Dexcom ONE+ in France.
For FY 2024, DexCom, Inc. (NASDAQ:DXCM) expects revenue of ~$4.00 – 4.05 billion and non-GAAP gross profit margin of ~63%. It expects adjusted EBITDA margin of ~29%. As of September 30, 2024, the company had $2.49 billion in cash, cash equivalents, and marketable securities and its revolving credit facility remains undrawn. Notably, the cash balance demonstrates significant financial and strategic flexibility as DexCom, Inc. (NASDAQ:DXCM) plans to expand production capacity and explore new market opportunities.
Aristotle Atlantic Partners, LLC, an investment advisor, released its Q3 2024 investor letter. Here is what the fund said:
“DexCom, Inc. (NASDAQ:DXCM)detracted from performance in the third quarter following an uncharacteristic earnings miss, which manifested late in the quarter. The miss was attributed to share loss in the durable medical equipment (DME) channel, reaching a full rebate threshold with insurance companies sooner than expected and a recent salesforce realignment that resulted in slower new patient starts. Management was clear that these are Dexcom specific issues around execution and that they were taking action to remediate those effects. The company stood by their long-range plan which calls for 15%-plus topline growth. We believe Dexcom now trades at a relatively attractive valuation given the strong long-term growth profile.”
Overall, DXCM ranks 9th on our list of 12 High Growth Large Cap Stocks to Buy Now. While we acknowledge the potential of DXCM as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than DXCM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
