We recently published a list of 8 Most Promising Medical Stocks According to Hedge Funds. In this article, we are going to take a look at where Masimo Corporation (NASDAQ:MASI) stands against other most promising medical stocks.
Growth and Innovation in the Global Medical Devices Sector
The healthcare sector depends on medical technology advancements, particularly devices used in disease prevention, diagnosis, and treatment. Unlike pharmaceuticals, medical devices work through physical or mechanical means rather than chemical processes. Key products include pacemakers, imaging equipment, dialysis machines, and implants.
Like many other industries, the medical device industry was greatly affected by the start of the COVID-19 pandemic. Interestingly, the In Vitro Diagnostics (IVD) segment saw significant revenue growth in 2020 and 2021, mostly due to the increased demand for PCR and fast testing. Overall, even while funding for digital health had been rising gradually in the years preceding the pandemic, it saw a notable uptick in 2021, hitting around $45 billion, more than all of the funds amassed between 2010 and 2017.
The global market for medical devices, estimated to be worth $570 billion in 2022, is expected to increase at a compound annual growth rate (CAGR) of 5.8% from 2023 to 2032, reaching over $996.93 billion. By 2032, the U.S. market is expected to have grown to a value of around $246.51 billion, with a compound annual growth rate (CAGR) of 5.6%. Key drivers propelling the medical devices market’s expansion in the upcoming years are the rise in demand for cutting-edge treatments and continuous technical developments in medical devices to meet unmet demands in the healthcare industry.
The importance of the medical devices sector, which employed over 329,000 people and generated $25.8 billion in payroll in 2020, is highlighted by the U.S. Cluster Mapping Tool. The 2023 EY Medical Technology study highlights supply chain management and financing as two important topics for Medtech leaders worldwide. In 2022, R&D expenditure returned to historical norms, despite reaching a record $24.7 billion. A significant drop in mergers and acquisitions is also noted in the report which indicates a diminished emphasis on inorganic growth tactics.
Artificial intelligence (AI) and other technologies have revolutionized patient monitoring, diagnosis, and treatment in the healthcare industry. Applications of AI include predicting results using electronic health information and evaluating radiological images for early detection. One noteworthy instance was when NVIDIA Corporation and Medtronic announced in March 2023 that they would be integrating NVIDIA’s AI technology into Medtronic’s FDA-approved GI Genius, an intelligent endoscopic module that helps detect precancerous growths.
READ ALSO: 10 Best Healthcare Stocks to Buy According to Hedge Funds and 10 Best Mid-Cap Healthcare Stocks to Buy Now.
Our Methodology
For our methodology, we began by filtering medical stocks from healthcare equipment ETFs. Next, we identified those with the highest number of hedge fund holders as of Q2 2024, using data from the Insider Monkey database. The final selection was ranked based on the number of hedge fund holders to prioritize stocks with greater institutional interest.
“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).”
A team of doctors and nurses in the operating room, utilizing a variety of Masimo’s medical technology.
Masimo Corporation (NASDAQ:MASI)
Number of Hedge Fund Holders: 35
Masimo Corporation (NASDAQ:MASI) is a global medical technology company specializing in noninvasive patient monitoring technologies. It develops and manufactures monitoring devices, sensors, and patient monitors used in healthcare settings worldwide. The company’s main goal is to improve patient outcomes and reduce healthcare costs through its advanced monitoring solutions.
Masimo’s flagship product is its Signal Extraction Technology (SET) pulse oximetry, which provides accurate measurements of blood oxygen saturation even in challenging conditions where traditional pulse oximeters may fail.
Masimo Corporation (NASDAQ:MASI) benefits from both growth and recurring revenue by selling sensor housings (by expanding the customer base for them) and sensors. Masimo is also opening a new plant in Malaysia to leverage economies of scale. Additionally, it halted sales of Apple’s latest Apple Watch due to patent disputes, and if Masimo launches its medical monitoring watch, the stock could see further gains. In September, its stock rose by 19% after management changes, and the planned spin-off of its consumer business could boost investor sentiment.
Masimo Corporation (NASDAQ:MASI)’s management shared details about cost control during the Q2 2024 earnings call:
“For the second quarter, our consolidated non-GAAP gross margin was 54%, which included gross margins of 62.5% for healthcare and 35% for non-healthcare. Healthcare gross margins improved 240 basis points year over year and rose 20 basis points sequentially, which is attributable to the relocation of sensor manufacturing to Malaysia combined with increased operational efficiencies and a favorable mixed benefit from higher consumable sales.
Our progress on this front gives us confidence in achieving our long-term goal of 30% operating margins for the healthcare business in five years. For our consolidated business, non-GAAP operating profit was $73 million. Our operating margin of 15% improved sequentially from the first quarter but declined modestly versus last year due to the return of performance-based compensation to normalized levels in 2024. Excluding the impact of performance-based compensation, our operating expenses decreased 4% versus the prior year period due to cost reduction initiatives. Even with the return of performance-based compensation, we delivered 13% earnings growth to achieve non-GAAP earnings per share of $0.86 for the second quarter.”
Overall, MASI ranks 7th on our list of most promising medical stocks according to hedge funds. While we acknowledge the potential of MASI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MASI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.”
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Disclosure: None. This article is originally published at Insider Monkey.