Finding Strength in Medical Supplies
Nathaniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As of late I have been looking to take advantage of a few major themes set to accelerate over the upcoming decades. In my recent articles I have taken a look a companies poised to benefit from the drastic rise in healthcare demand. The surge in demand will be fueled by our aging population in combination with greater accessibility for the masses. I continued this search last weekend and stumbled upon a few interesting small-cap growth opportunities in the medical supplies industry.
From a broad viewpoint the entire medical supplies industry should be helped by numerous tailwinds. The baby boomer population isn't getting any younger, but fortunately for these folks, life expectancy rates are getting longer. According to the U.S. Census Bureau just under a decade ago, senior citizens accounted for only 12% of the American population. By 2050, senior populations are expected to rise drastically to 21%. While we are living longer, chronic medical conditions aren't going anywhere. Some estimates say that by 2030, more than 170 million Americans will be affected by chronic conditions, thus demanding healthcare services. You can't have healthcare services without healthcare supplies can you? Lets take a look at three companies to consider as an ancillary play on rising healthcare demand.
Up first is Rochester Medical Corp (NASDAQ: ROCM), a company that specializes in the niche catheter market. Rochester oversees the development, manufacturing and marketing of a range of PVC-free and latex-free urinary continence and urine drainage care products for the extended care and acute care markets. While there is a long list of reasons patients experience urinary continence, the likely causes are typically age related. As we get older, the bladder muscle weakens, thus the bladder's capacity to store urine shrinks leading to an increase in overactive bladder symptoms. While the company does trade at a rich forward earnings multiple, 31 times, analysts are expecting great growth. This year the company is expected to grow 109%, leading into 45% growth the year after. The company differentiates itself from competition by offering patented all-silicon designs. With Rochester's technology, healthcare providers can eliminate allergens, toxins, and disposal concerns that may be associated with latex or PVC catheters. As a result, its pricing power in this specific niche remains high. I see the company sustaining good growth well into the next three decades as a result of both demand increases and strong pricing power.
Next up, C. R. Bard, Inc. (NYSE: BCR) is a cost-conscious developer, manufacturer, and marketer of innovative, life-enhancing medical technologies in the fields of Vascular, Urology, Oncology, and Surgical Specialty products. Bard markets its products to a broad range of healthcare providers, including hospitals and long term care providers. Similar to Rochester, the company offers a range of urinary continence products in addition to endoscopic, gastrointestinal, and biopsy tools. Bard is set to benefit from greater healthcare accessibility due to the single patient focus of its products. On a valuation basis this company is far less expensive with only a 17 times forward earnings multiple. While growth may be slightly slower, the product portfolio is more diversified. Earlier this month management announced it will raise its quarterly dividend in addition to the start of a $500 million share buyback.
Lastly, Teleflex Inc. (NYSE: TFX) is another diversified healthcare supply company with an array of products in many fields, including vascular access, general and regional anesthesia, urology, respiratory care, cardiac care and surgery. The company's specialty fiber technology, Deknatel, is used in a variety of surgical components. With the acquisition of VasoNova a couple years ago, management cemented itself in the growing PICC industry. A PICC is used to hold open veins for prolonged periods to allow the administration of various medicines. While Bard has held the industry leader position since the development of PICC technology, Teleflex is quietly taking market share and is expected to generate significant revenues for the first time later this year, roughly $32 million. As we see a rise in chronic treatments, I feel it's likely Teleflex will continue to increase its revenues from this business segment. Moreover, the demand for PICC's should rise due to the difficulties seen with traditional IVs in older populations. With the company's 10% growth rate, 15 times forward earnings seems inexpensive.
While I am bullish on the entire healthcare sector, I feel investors can find passed over opportunities in quiet medical supplies industry. While these companies may not be as sexy as biotechnology, revenues should consistently grow in tandem with the healthcare industry. I would use a broad market pullback as a long-term opportunity to start positions in these companies. Rochester Medical should benefit from rising demand and strong pricing power associated with its niche line of catheters. Bard and Teleflex offer diversified portfolios of medical supplies which should allow these companies to benefit from greater healthcare demand across the board.
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Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!