As you know, I love new stocks. And I love medical innovation. But last year the two themes simply did not align, thanks to a flood of copycat healthcare IPOs that left investors more bewildered than intoxicated. Now, with the flood seemingly subsiding, the landscape left behind is full of corporate wreckage. Is it time to start combing the beach for buried treasure?

The short answer is “yes” but as always, your timeline is the most important factor. How long are you willing to wait for last year’s failed stocks to grow into the medical marvels of the future? A year? Five years? A decade? The longer you can remain patient, the better you’ll do.

Because there is a stunning amount of wreckage on the market right now. I count 126 healthcare companies going public in the past 12 months and a full 100 of them now trade below their starting price. Barring a handful of biotech deals that managed to impress Wall Street, the Class of 2021 has dropped an average of 36% . . . and until recently the charts pointed straight to the bottom.

It’s not hard in retrospect to see why. These companies collectively issued $21 billion in stock, enough to buy all but a handful of the biggest medical device conglomerates on the planet. That’s a lot of shares, especially when you consider how few of the debutantes are profitable or even have appreciable sales.

They’re early in their corporate evolution, closer to the drawing board than the big time . . . and that means shareholders need to focus on the long-term potential. If you’re obsessing over what these companies are worth today, there are hundreds of established, mature alternatives that would be a better fit. Like Medtronic Inc. (MDT), for example, many have even reached the point where they pay dividends. You’ll find plenty of them in my Value Authority.

But they’re more or less “mature.” If you’re looking for real transformational results, you need to see the future giant hidden in the speculative stocks that Wall Street threw away last year. And that requires clarity on why early-stage healthcare companies are so appealing.

From Byte To Body

Innovation is a huge driver of profits in the market and when the technological imperative interacts with the body we call it “Medtech.” It’s more than the biotech therapies that hit the headlines in the pandemic. Medtechs often specialize in the invention, creation, and production of medical devices used in all kinds of healthcare settings to improve lives. They’re important because they play a big role in medical therapies and innovations that keep people healthy.

Although the name makes these companies and technologies sound exotic, they’re really not. Medtechs are all around us, and quite a few are household names. We encounter technologies in this space in our everyday lives, probably more than we realize, like at the eye doctor or when we hop on a video conference with our Nurse Practitioner for a cold.

One name you might recognize is GE Healthcare, a global medical technology and digital solutions company. Another is Johnson & Johnson (JNJ). JNJ has a medical devices division with a focus on science and technology for surgery, orthopedics, vision, and interventional procedures. They are also a biotech company focused on biotherapies and cancer treatment.

You may also recognize Teladoc (TDOC), especially with plenty of care settings moving in-home (remote) during the pandemic. Teledoc is a global virtual care and telemedicine company that provides virtual medical visits to patients.

Plenty of medtechs that have gone public have grown to be real players in the space, and a couple have even branched out into technology acquisitions through building up their own investment arms. Buyers are active in this sector, and we’ve seen a rise in buyouts and takeovers of diagnostics testing companies and diagnostics analytics players. Venture investments in medical device companies have climbed by billions of dollars and we’ve seen dozens of series A investments in the non-invasive monitoring space.

5 Medtechs on My Radar

Right now, there are a few notable players in the space that I have my eye on. Most are trading well below their IPO price but their long-term innovation remains on track . . . even more advanced than before. After all, development cycles are measured in years. How can real shareholder returns play out on a more accelerated timeline?

Cue Health (HLTH) is a diagnostics-focused startup that went public after making a name for itself by developing a portable COVID-19 test kit. Cue began trading in October of last year and initially offered up 12.5 million shares of common stock at an opening price of $16 per share. Here below $10 you can see the deep discount opportunity. They now want to widen their product offering with more tests and will be investing to expand production capacity, add additional software and services, and further build out their team.

Paragon 28 (FNA) is a medical device company that focuses on the foot and ankle orthopedic market. The company begin trading on the New York Stock Exchange on October 15, 2021. Based in Englewood and founded in 2010, the company makes orthopedic implants and medical devices for the foot and ankle. Some of the solutions in their portfolio are surgical implants, disposables, and surgical instrumentation… with an impressive 72 product systems.

Sight Sciences (SGHT) is a growing medical device company focused on the development and commercialization of proprietary devices targeting the underlying causes of prevalent eye diseases. The company began trading on the Nasdaq on July 15, 2021. Headquartered in Menlo Park, California, the company developed the TearCare system, a nonsurgical device worn over the eyelid when a warm compress is called for, creating localized heat to treat dry eye.

Signify Health (SGFY) launched in December 2017, after the merger of CenseoHealth and Advance Health. They provide a value-based care platform that uses advanced analytics and other technology to shift health services toward the home. Customers include health plans, governments, employers, health systems, and physician groups. They do in-home visits to assess the need for specific health and social determinants of health services for their customers and have a network of 9,000 providers. The company began trading on the New York Stock Exchange in March of 2021.

Bausch & Lomb is an eye-care company. Their parent company Bausch Health went public about a year and a half ago, with their core operations being pharmaceuticals. They decided to spin off Bausch & Lomb in 2020. An iconic name in eye care, the company invented Ray-Ban sunglasses for military pilots and brought us some of the first mass-produced soft contact lenses. The company plans to list its shares on the New York Stock Exchange under the symbol “BLCO.”

There’s a lot to be excited about in this space, and there seems to be plenty of funding for innovative technologies such as digital health, artificial intelligence, and robotics. No doubt you’ve noticed an uptick in things like mobile health apps, telehealth (virtual) office visits, and watches or other wearables that monitor your health.

It’s an exciting time and you’ll want to stay tuned for more updates on the exciting companies we’re researching in the space and will likely be adding to our Buy Lists once we’re sure Wall Street is ready to focus on the future.