The healthcare sector has stood out from other market segments, and within the sector, more established medical technology company stocks and exchange traded funds are also showing healthy gains.
For instance, over the past year, the iShares U.S. Medical Devices ETF (NYSEArca: IHI) has increased 22.3% and the SPDR S&P Health Care Equipment ETF (NYSEArca: XHE), an equal-weight rival to the cap-weighted IHI, has gained 24.7%. In contrast, the SPDR S&P 500 ETF (NYSEArca: SPY) has returned 11.7%.
Market analysts argue that medical devices and equipment manufacturers are a good healthcare bet and remain well positioned for global growth, reports Constance Gustke for CNBC.
Specifically, observers argue that medical technology companies can tap into increased healthcare spending among emerging economies while the U.S. market has matured and could experience slower growth.
Emerging countries have a large, aging demographic and workers are seeing incomes rise, which could equate to a 15% revenue growth for medical technology companies from those countries, Gregory Chodaczek, a senior research analyst at Sterne Agee, said.
For instance, McKinsey & Company calculated that China’s healthcare spending could triple between 2011 and 2020.
“India and China are huge opportunities,” Chodaczek said in the article. “The pacemakers, knee replacements and the drug dispensers that have been in the U.S. for 20 years haven’t shown up there yet. And hospitals will pay for them.”
Joanne Wuensch, a research analyst at BMO Capital Markets, estimated that emerging markets accounts for the fastest-growing segment of Medtronic (NYSE: MDT), which makes pacemakers and defibrillators.
MDT makes up 13.8% of IHI and 1.7% of XHE.
Debbie Wang, a senior equity analyst at Morningstar, argues that medical technology stocks are stable long-term plays as companies have attractive products in their pipelines and experience relatively short corrections.
Abbot Laboratories (NYSE: ABT) is also expected to benefit from emerging market growth as half of sales come from developing countries, including India and China. Moreover, the company is spinning off its developed market businesses to focus on faster-growing economies.
“Abbott has an attractive business,” Wang said, “and it has a strong competitive advantage.”
ABT makes up 10.4% of IHI and 1.8% of XHE.
For more information on the healthcare sector, visit our healthcare category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.