With the S&P 500 Health Care Index lower by 1.43% year-to-date, it’s fair to say healthcare isn’t among the sectors rebounding in 2023’s early innings. However, upon closer inspection, some corners of the group are starting the year in strong form.
Medical devices, historically one of the growthier and more durable corners of the healthcare sector, are delivering for investors. Just look at the SPDR S&P Health Care Equipment ETF (NYSEArca: XHE), which is higher by nearly 6% since the start of 2023.
While the medical device industry isn’t 100% immune to macroeconomic risk, as was on display in 2022, it has some advantages, including price power and its status as a disruptive corner of the wider healthcare arena. Additionally, some analysts are constructive on the industry for 2023.
“Based on commentary, the broader environment seems to be gradually improving, and early 4Q pre-announcements have mostly been above consensus,” wrote KeyBanc Capital Markets analyst Matthew Mishan in a note to clients. “We continue to believe in a MedTech investment thesis of relatively recession-resilient sales.”
The $399.47 million XHE turns 12 years old later this week and follows the S&P Health Care Equipment Select Industry Index. That index is pertinent to investors considering this exchange traded fund because it equally weights the fund’s 78 holdings. That diminishes single-stock risk, but that might not be a primary concern at a time when analysts are forecasting upside for several XHE components.
That group includes Paragon 29 Inc. (FNA), a small-cap firm that hasn’t even been public for two years. The company recently delivered preliminary fourth-quarter results, indicating it could top Wall Street’s revenue outlook by as much as 20%.
“The company specializes in plating and bone graft systems to treat ankle and orthopedic problems. While not widely followed, all six of the analysts covering the stock rate it a buy, according to FactSet. The mean price target implies nearly 50% upside over the next 12 months,” reported Bertha Coombs for CNBC.
Shockwave Medical (SWAV), a producer of devices used to treat hard arteries, is another XHE component analysts like.
The company “told analysts last week that is confident that one of its marquee products will receive the highest tier Medicare reimbursement rate of $17,000 in coming months; the company is in discussions with the Centers for Medicare and Medicaid,” according to CNBC. “More than 60% of analysts rate the shares a buy, with a mean price target implying 34% upside.”
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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.