The U.S. Medical Device industry trend in 2018 is reflective of extensive discovery and innovation in the life sciences industry over the past few years.

Per a study published by CNBC, medical device companies have gained importance in the healthcare world on improved research and development (R&D) of technology. Far-reaching innovation like gene therapy, newer drug combinations, patient monitoring with the help of big data this year will shape up the medical fraternity of the United States.

Tax Suspension to Fuel R&D

The Medical Device market has further gained momentum owing to the recent two-year suspension of the controversial 2.3% Medical Device tax. The 2.3% excise tax was implemented in 2013 as part of Obamacare on MedTech manufacturers, significantly restricting R&D activities.

According to an article published in Xtalks, the Medical Device tax was responsible for a $34-million reduction in R&D spending along with a $188-million decline in overall sales.

However, it is to be seen whether the tax will be fully eliminated or resumed after the two-year period. For now, the deferral will encourage R&D activity in this space, which bodes well for MedTech companies.

Notably, in the past month, the medical instruments industry has rallied 3.8% against the S&P 500 index’s return of 1.5%.

R&D Leads to Revolution in MedTech

The MedTech space currently offers unprecedented opportunities for growth and market share expansion. Solid investment in R&D has helped manufacturers use the benefits from big data, artificial intelligence (AI) and medical mechatronics.

The industry is also catching up with the digital-data age. Enormous size of data can be captured through technology for arriving at business insights. This helps the healthcare sector provide better care and reduce wastage. The latest trend of adopting electronic health record (EHR) services in the U.S. MedTech space has also been gaining popularity.

Some of the major HCIT (Healthcare I.T.) bigwigs, which have carved out a niche in the big-data domain, are Cerner Corporation and athenahealth, Inc. These companies are making significant investments in R&D to boost up their EHR platforms.

Meanwhile, medical Mechatronics is a much-awaited digital evolution in the global healthcare industry, providing innovation to the healthcare industry through reduction in the size of the age-old medical devices and development of low-cost disposable devices.

Engineering concern eInfochips believes that mechatronics is the future of medical devices. The benefits of Mechatronics have been seen in the form of 3D printing, cancer study, and development of better medication for deadly diseases.

Notably, Intuitive Surgical’s (ISRG - Free Report) minimally-invasive da Vinci surgical system and Stryker Corporation’s (SYK - Free Report) robotic-arm assisted surgery platform, Mako, deserve a mention here.

Choosing the Winning Stocks

Given the favorable scenario, investment in Medical Device stocks with strong potential seems to be a wise choice. Stocks with strong fundamentals and solid R&D prospects might make rewarding additions to your portfolio.

We have taken the help of the Zacks Stock Screener to select favorable stocks. To shortlist stocks from the vast universe of medical products, we have picked the ones with a Zacks Rank #1 (Strong Buy) or 2 (Buy) along with a Growth Score of A or B.

Notably, the Growth Score is a comprehensive tool that comes in handy while screening winning stocks from broader sectors. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 or 2, outperform most stocks. 

Abiomed, Inc. (ABMD - Free Report), which sports a Zacks Rank #1. The stock’s Growth Score is B, indicating outperformance in the near term. This is underpinned by the fact that the stock has an impressive long-term earnings growth of 27%.

In the last 60 days, the Zacks Consensus Estimate for Abiomed’s current-quarter earnings per share has increased 1.3% to 80 cents.

ABIOMED, Inc. Price and Consensus

ABIOMED, Inc. Price and Consensus | ABIOMED, Inc. Quote

In the past six months, shares of Abiomed have skyrocketed 118.6%, against the industry’s decline of 7.1%.

Abiomed’s flagship Impella, the world’s smallest heart pump, has continued to be a growth driver. Notably, in the fourth quarter of fiscal 2018, the company spent $21.3 million in R&D, up 30.3% from the year-ago quarter.

Integer Holdings Corporation (ITGR - Free Report) carries a Zacks Rank #2 and has a Growth Score B. The long-term earnings growth is projected at 15%.

In the last 60 days, the Zacks Consensus Estimate for Integer Holding’s current-year earnings per share has increased 2.1% to $3.37.

Integer Holdings Corporation Price and Consensus

Integer Holdings Corporation Price and Consensus | Integer Holdings Corporation Quote

In the past six months, shares of Integer Holdings have rallied 40.5%, faring better than the industry.

Integer Holdings has also been enhancing profitability in the areas of Advanced Surgical, Orthopedics, and Power Solutions through focused sales growth and cost-structure initiatives. The company plans to invest more in the areas of Cardio & Vascular, Neuromodulation, and Electrochem to accelerate sales and market penetration.

Notably, in the first quarter of 2018, the company spent $14.5 million on R&D, up 8.4% on a year-over-year basis.

Varian Medical Systems (VAR - Free Report). The stock has a Zacks Rank #2 and Growth Score B. The company’s long-term earnings growth is projected at 8%.

In the last 30 days, the Zacks Consensus Estimate for Varian Medical’s current-year earnings per share has risen 0.2% to $4.48.

Varian Medical Systems, Inc. Price and Consensus

Varian Medical Systems, Inc. Price and Consensus | Varian Medical Systems, Inc. Quote

In the past six months, shares of Varian Medical have rallied 4.6%, significantly beating the industry.

Varian Medical rides on solid growth prospects for its coveted Halcyon radiotherapy treatment system and HyperArc platform. While Halcyon is designed to offer cost-effective cancer care, HyperArc is a high-definition radiotherapy technology.

In the second quarter of fiscal 2018, the company spent $58.9 million on R&D, up 10.5% from the prior-year quarter.

STERIS plc (STE - Free Report) has a Zacks Rank #2 and a Growth Score B. The company’s current-year earnings growth is projected at 13.5%.

In the last 60 days, the Zacks Consensus Estimate for STERIS’ fiscal 2019 earnings per share has increased 0.8% to $5.18.

STERIS plc Price and Consensus

STERIS plc Price and Consensus | STERIS plc Quote

In the past six months, shares of the company have rallied 18.9%, considerably better than the industry.

The company’s goal is to provide infection prevention and other procedural products and services. In the fourth quarter of fiscal 2018, the company invested $17.6 million in R&D, up 11.7% on a year-over-year basis.

IDEXX Laboratories (IDXX - Free Report) carries a Zacks Rank #2 and a Growth Score B. The company’s long-term earnings growth is projected at 20.2%.

In the last 60 days, the Zacks Consensus Estimate for IDEXX’s current-year earnings per share has increased 1.5% to $4.17.

IDEXX Laboratories, Inc. Price and Consensus

IDEXX Laboratories, Inc. Price and Consensus | IDEXX Laboratories, Inc. Quote

In the past six months, the stock has rallied 38.8%, significantly outperforming the industry.

The company develops, manufactures and distributes products primarily for the companion animal veterinary, livestock, and poultry. In the first quarter of 2018, the company spent $29 million on R&D, up a significant 12.5% from a year ago.