Global demographic history is being written at this very moment.
The same demographic wave is playing out in Europe, Japan, China, Australia and countries the world over. And whenever there is a wave of change in society, there is usually an investment opportunity as well.
Perhaps the biggest opportunity that comes with it is in medical care.
Even better, the opportunity is further bolstered by the fact that the global population growth is increasing too -- meaning there will be more people tomorrow, next year and next decade in need of medical care than ever before.
Medical care represents an unprecedented level of investment potential.and the burgeoning field of medical technology shows the greatest growth promise -- more specifically, the medical robotics sector.
This includes surgical robots, non-invasive radiosurgery, rehabilitation robots, prosthetics and robotics in the pharmacy and emergency response areas.
These machines can be used to conduct minimally invasive surgeries and tests, and is increasingly being utilized by hospitals for a host of duties from treating neurological and orthopedic problems to providing hospital therapies.
With medical robotics and the Internet, it already is possible for a doctor in Boston to perform arthroscopic surgery on a patient in Peru. And before long, it could become commonplace.
The global medical robotics systems market is already estimated at about $5 billion today. But it is expected to jump to $17.9 billion by 2020, according to an industry study by Grand View Research.
Three U.S. companies stand out today as the most prominent leaders in medical robotics -- Intuitive Surgical, Inc. (Nasdaq: ISRG), Varian Medical Systems, Inc. (NYSE: VAR) and Stryker Corp. (NYSE: SYK). These companies are solidly profitable and sport price-to-earnings ratios that are all below the industry average of 34.3. First Call Corp., a market research firm, has a consensus view of “buy” on all three due to their fundamentals and growth prospects.
There are other companies operating in the medical robotics space, but many of them are private or small caps and penny stocks. Others are part of much larger parent companies that deliver way too much skew for investors looking for something closer to a pure play.
Intuitive Surgical, Inc. (Nasdaq: ISRG)
Intuitive Surgical is perhaps the best known of the three. Its da Vinci surgical robot has already been through several increasingly successful iterations. ISRG’s Q2 earnings fell versus its earnings from the same period a year ago, in part because of a tougher capital spending environment at the hospital level.
The company recently introduced its new and more advanced da Vinci Xi surgical system with 3-D visualization -- aimed at the minimally invasive surgery market -- that has won both FDA and European approval.
ISRG certainly has blockbuster potential, but its stock does tend to be volatile, so it is not without risk.
Varian Medical Systems, Inc. (NYSE: VAR)
Varian is a leader in medical devices and software for treating cancer. Its image-guided radiation therapy incorporates robotically controlled arms to safely deliver dosage and optimal views of a tumor.
It delivers the best return on equity of the three stocks mentioned, at 24.4%. However, this year’s projected EPS growth rate of 6.86% is the weakest of the three, so the size of its potential profits expansion is unclear at the moment.
Stryker Corp. (NYSE: SYK)
Stryker may present the best share price appreciation potential among the three. Stryker is one of the world’s largest medical device makers in the global orthopedic market. Its products are sold in more than 100 countries, so it is well positioned to benefit from the growth in medical care expenditures in China and other emerging markets.
Stryker is pursuing an active acquisition strategy and made a splash last year with its purchase of MAKO Surgical to gain a competitive edge in hip and knee replacement robotics -- a sub-market with torrid growth due to its increasing applications for geriatric purposes.
A bonus development that could make Stryker's stock soar is its potential acquisition of British rival Smith & Nephew. If Stryker were to acquire the company and move its tax domicile to the United Kingdom, the company could see tens of millions of dollars drop straight to its bottom line in the form of sudden profits.
I think Stryker represents the best value among the three stocks mentioned here, with a P/E ratio of 17.5 versus ISRG’s 30.4 and VAR’s 19.9. It also has the best projected earnings per share growth rate of the three for 2014, at an analyst consensus of 12.77%.
Risks To Consider: Uncertainties surrounding The Affordable Care Act in the United States and austerity measures in Europe could force hospitals and doctors to think twice before committing to the capital investments required for medical robotics. The sales cycle is lengthy and adoption times can be extended due to complexity and training requirements.
Action to take --> Any or all of the three stocks can be purchased for a long position, with Stryker perhaps offering the best short-term potential. They have strong product pipelines and are expanding into global markets. The increasing geriatric population base and rising per capita healthcare expenditures worldwide should boost their growth for years to come.