The U.S. investment space has been fraught with uncertainties of late. The healthcare industry, in particular, has been facing multiple issues, with the Obamacare-repeal saga dominating the headlines. However, President Trump’s proposed policies to abolish the infamous 2.3% medical device sales tax, a key part of the Affordable Care Act, have kindled hope in the MedTech space. Notably, this tax has been suspended for two years and is supposed to be put into effect again on Jan 1, 2018.

Such high taxes forced companies to lay off employees, limit research and development activities and reduce capital investment. However, a recently-proposed legislation looks to extend the suspension of the medical device tax for another five years. This has undoubtedly been the latest buzz in the MedTech space.

How Will the Tax Suspension Help MedTech?

"The tax code is a monstrosity and there’s only one thing to do with it. Scrap it, kill it, drive a stake through its heart, bury it and hope it never rises again to terrorize the American people." — Steve Forbes

AdvaMed, a leading American medical device trade association, had referred to the medical device tax as a ‘significant drag on medical innovation’. Small device companies have suffered the most owing to this. Amid such worries, a repeal of the tax paradigm is expected to boost the pace of hiring and investment among the 9,000 America-based medical device manufacturers, instilling investor confidence in the stocks.

In line with the latest legislation, a report by The Joint Committee on Taxation as published in Forbes in the article written by Bruce Japsen suggests that the Internal Revenue Service collected taxes in the range of $1 billion to $2 billion per year in 2013, 2014 and 2015. This repealing of the medical device tax will cost the U.S. Treasury around $20 billion over a decade.

AdvaMed’s CEO Scott Whitaker said that during 2016 and 2017, MedTech players have been able to reinvest a huge amount in innovation that would otherwise have been paid as taxes.

Further, according to a report by Joe Panetta, Biocom’s president and CEO, the Congress must repeal the tax immediately which impedes innovation, jobs, economic growth and delays patient access to medical technology. This is also necessary to ensure that MedTech sectors continue with research and development and reinvest in innovation.

How is MedTech Positioned?

Though Medtech is faced with intense volatility, there are bountiful opportunities in the space. Per Centers for Medicare and Medicaid Services report published by Advisory Board, U.S. health care spending is estimated to reach approximately $5.5 trillion by 2025, representing 19.9% of Gross Domestic Product (based on assumptions that the Affordable Care Act will continue through 2025).

In the view of this, investors should ideally pick stocks that have the potential to safeguard portfolios from market volatility.

Our Screening Parameters

In order to save investors the time-taking process of identifying the best performing MedTech stocks, we have taken the help of the Zacks Stock Screener.

We also chose stocks that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).

We have selected stocks that have a favorable Growth Style Score of A or B. Our research shows that stocks with Style Scores of A or B, when combined with a Zacks Rank #1 or 2, offer the best investment opportunities. Furthermore, the selected stocks boast a VGM Score of A or B.

Under the Zack Style Score system, V stands for Value, G for Growth and M for Momentum. The VGM Score is simply a weighted combination of these parameters and is a comprehensive tool that allows investors to filter through the standard scoring system and pick the winning stocks.

Apart from this, we have filtered out MedTech stocks with attractive long-term (three-to-five years) earnings growth rate as well as impressive earnings and sales growth rates for the current fiscal. Strong fundamentals, strategic implementation, planned execution and certain other positive factors show that these shortlisted performers carry substantial upside potential.

Accordingly, we have zeroed in on the following stocks:

Chemed Corporation (CHE - Free Report) is a provider of end-of-life hospice care services through its VITAS Healthcare Corporation subsidiary. This Zacks Rank #2 company has a long-term expected earnings growth rate of 10% and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chemed currently operates through two wholly-owned subsidiaries, namely, VITAS Healthcare Corporation — a major provider of end-of-life care — and Roto-Rooter, a leading commercial and residential plumbing and drain cleaning service provider. The company’s subsidiaries saw year-over-year revenue growth in the third quarter. Also, the guidance raise backed by the company's expectations of significant gains from its Roto-Rooter business buoys optimism. This business has witnessed consistent growth on strong performance by the core plumbing and drain cleaning service segments as well as solid growth in water restoration.

The stock’s projected EPS growth rate for the current year is 15.8%, as against the broader industry’s estimated decline of 4.6%. The stock has gained 49.1% over a year, better than the broader industry’s decline of 4.9%. The company has a VGM Score of A and a Growth Score of A.

Natus Medical Incorporated (BABY - Free Report) is a leading provider of healthcare products used for the screening, detection, treatment, monitoring and tracking of common medical ailments such as hearing impairment, neurological dysfunction, epilepsy, sleep disorders, and newborn care.

The company recently announced the buyout of certain neurosurgery business assets from Integra LifeSciences. According to the company, the buyout includes the global Camino ICP monitoring product line, including its San Diego manufacturing facility, and the U.S. rights relating to Integra's fixed pressure shunts and U.S. rights to Codman's DURAFORM dural graft implant, standard EVD catheters and CSF collection systems.

The company carries a Zacks Rank #2 and a VGM Score of B. The projected sales growth rate for the current year stands at 34.9% compared with the broader industry’s estimated gain of 2.4%.The stock has gained 14.2% over the last six months, higher than the broader industry’s 4.5%.

Cogentix Medical, Inc. (CGNT - Free Report) is a medical device company which designs, develops, manufactures and markets proprietary technologies for the urology market.

The company recently acquired Genesis Medical. The acquisition will add $0.8 million to revenues in the second half of the year and more than $2 million in the next year.

The company has a Zacks Rank #2. The stock has a Growth Score of A and VGM Score of B. It has gained 64.8% over the last six months, compared with the broader industry’s 4.5%. The projected EPS growth rate for the year stands at 96.3% compared with the broader industry’s 16%.

LivaNova PLC (LIVN - Free Report) is a medical technology company which focuses on providing treatment for cardiovascular diseases and neuromodulation. The company recently announced the receipt of FDA approval for its latest Vagus Nerve Stimulation Therapy System.

The system consists of the SenTiva implantable generator and the next-generation VNS Therapy Programming System for the treatment of patients with drug-resistant epilepsy.

This Zacks Rank #2 stock promises long-term earnings growth of 10%. Notably, LivaNova has a Growth Score of B and VGM Score of B. The stock has gained 33.7% over the last six months, higher than the broader industry’s 4.5% gain.