4 medical stocks with an improving prognosis for 2024

Image of medical technology headlines on a computer with a businessman in front of a screen

Key points

  • Medtech stocks have seen mixed performance over the past two years, offset by dividend payments.
  • Many in the group are trading at value levels, with expected growth expected to remain solid over the next two years.
  • Tailwinds are building that could help take this market to new highs in 2024 and 2025.
  • 5 stocks we prefer to those of Johnson & Johnson

Medical stocks have seen mixed results over the past two years, with most stocks moving within established trading ranges. The impact of COVID and its effect on procedure volumes were slow to dissipate and growth prospects were uncertain, leaving their stock market without a solid catalyst to drive it, despite many trading at value levels and paying healthy dividends .

Today, these healthcare stocks are expected to deliver steady growth for at least the next two years, supported by innovation, post-COVID normalization, global population growth, advancing economic development in emerging markets, and penetration of existing markets .

Revenue growth is expected to drive margin improvement, and most of these companies pay dividends. Those that don’t provide value in other ways. The bottom line is that favorable factors exist to support this sector and are expected to persist for years.

Johnson & Johnson, the dividend king of MedTech stocks

Dividend King Johnson & Johnson NYSE:JNJ had a solid fourth quarter thanks in large part to its MedTech unit. The company’s revenue is down year-over-year (YOY) due to the Kenvue spin-off, but core ongoing operations increased 6.5% year-over-year, led by a 13% increase in MedTech. MedTech sales are driven by wound closure devices, which demonstrate strengthening procedure volume, and contact lenses, which represent a recurring and growing revenue stream.

Earnings strength is expected to persist into 2024, and Johnson & Johnson returns to revenue growth in 2025. Until then, this King yields about 3.0%, trading at 15X earnings with a payout ratio of less than 50 %. The pace of retail growth may slow, but retail growth is expected to continue. Analysts made no changes to the consensus following the release; they rate the stock a “hold” and assume an upside of 5% at the midpoint and 35% at the high end of their range.

Johnson & Johnson chart

Abbott Laboratories is on track to break out of its trading range

Shares of Abbott Laboratories NYSE: ABT they got caught in a confirmed trading range on the day of the fourth quarter earnings release. However, the market has accepted this decline and the stock is on track to break out of its range soon. This company demonstrates solid underlying growth and has returned to reported growth following the post-COVID disappointment. Growth is expected to accelerate this year and next.

The medical technology unit supports Abbott’s strength, up 18% year over year on a 26% increase in its FreeStyle Libre glucose monitoring system. The diagnostics unit was also strong, producing double-digit core growth ex-COVID. This Dividend King pays a 2% lower yield at a 25x higher valuation than JNJ, but is equally safe and expected to grow. Abbott’s value is tied to the quality of its business and management, which is among the highest of any healthcare-related company.

ABT chart

Intuitive Surgical: Taking the MedTech Group to New Highs

Intuitive surgery NASDAQ:ISRG leads the pack, producing 16% revenue growth and a wider margin in the fourth quarter. This company is expanding its business and leverage with accelerated device installations and an increasing volume of procedures at existing locations. This is driving a 22% increase in tools and accessories, the recurring part of the business, setting it up to pay solid dividends in the future. Until then, the company has focused on growing the business and creating shareholder value, which is up 20% on a per-share basis in 2023. Top and bottom line growth will remain strong in the double-digit range in 2024.

Intuitive surgical table

Stryker Corporation is trending upward in terms of results and revenue quality

Stryker Corporation NYSE: SICK stands out among medical technologies, with its stock price steadily rising over the past decade. This stock trades at the highest valuation on this list, but there’s a reason. Stryker is sustaining solid growth and paying dividends with the healthiest growth outlook.

Stryker stock yields just 1% when trading at 30x, but pays out just 30% of its earnings forecast, consistently beating expectations. The distribution growth rate is attractive and more than doubles compared to competitors JNJ and ABT. Analysts also help support the market by rating the stock a “buy” and driving price action with upward revisions. The consensus assumes the stock is fairly valued at around $315, but the most recent revision is at $345, or an upside of about 10%.

Chart from Stryker Corporation

Before you consider Johnson & Johnson, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Johnson & Johnson wasn’t on the list.

While Johnson & Johnson currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here

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