3 GARP MedTech Stocks to Beat Pandemic-Led Market Volatility

The global economy continues to reel under the impact of the coronavirus pandemic, which is showing no signs of dying down any time soon.

In fact, the pandemic has made the stock market more unpredictable than ever. Investors anticipated to witness growth on the back of pent-up demand buoyed by optimism of a potential vaccine and reopening of economy. However, this sentiment was short-lived as U.S. stocks suffered their worst one-day sell-off in three months on Jun 11 as growing apprehensions regarding a second wave of coronavirus cases took hold.

Although the fiscal and monetary stimulus did favor the markets and halted the downward spiral, a surge in new COVID-19 cases and public debt rising to a record high have once again spooked markets. In fact, fears that recovery might not be as vibrant as anticipated during the “new normal” period are slowly gaining ground.

In fact, after experiencing recessionary crisis through the first half of the year, there are chances that the investors will play more defensive in the second half, which might result in further market turbulence.

Impact of Pandemic on MedTech

MedTech has been hit severely by the coronavirus crisis. The pandemic took a toll on the MedTech companies in the first quarter with most of the companies either withdrawing or lowering their guidance in the wake of uncertainties related to the pandemic. If that’s not all, companies depending on elective and non-critical procedures (orthopaedic and cardiac comprising the major portion) have taken a substantial hit and anticipate the procedure volume and system replacement disruption to intensify in the second quarter and possibly beyond.

However, if we shift our focus to spaces like telemedicine and diagnostic testing, then we can see that companies offering these services have not only been resilient to this public health crisis but also capitalized on the same. In fact, the momentum gathered by these companies is expected to continue in the upcoming quarters.

GARP – Prudent Investment Strategy for MedTech Now

With the persisting market volatility, resulting in widespread panic selling along with the aforementioned mixed performance in the MedTech space, investors are bound to have apprehensions over investing in the same.

Let’s see how this can be made easier for investors who are gradually adapting themselves to the “new normal” economy while looking for long-term returns to their portfolio.

In this scenario, a hybrid investment strategy called GARP (growth at a reasonable price) comes into play. Often known as a special case of growth and value investments, GARP, helps to find out stocks with solid long-term prospects that have become cheap amid economic woes.

To narrow down the list, we have selected those with a Value Score of A or B. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Here we also emphasise on stocks with discounted PEG (Price-Earnings-Growth) ratio which holds a growth parameter in it.  

Three Top Picks

Laboratory Corporation of America Holdings LH or LabCorp’s first-quarter 2020 performance was impressive despite the pandemic-induced business disruptions. New partnerships with leading pharmaceutical and biotechnology companies on potential antivirals, treatments and vaccines for COVID-19 are expected to bode well for the company’s Covance business. The company sports a Zacks Rank of 1 and a Value Score of B.

The stock’s PEG ratio stands at 2.77, which is currently trading at a discount to its industry’s 3.33. Moreover, the P/E stands at 16.75, trading at a discount to its industry’s P/E of 32.45. Apart from this, the company has a long-term expected growth rate of 6.1%. Over the past three months, it has rallied 18.9%, outperforming the industry’s growth of 11%.

Anthem, Inc. ANTM has been taking significant strides amid this pandemic. The enhancement of its telehealth app — LiveHealth Online, which has seen a significant number of physicians and other health professionals queuing up for this app, is noteworthy. Patients can be consulted through LiveHealth Online from the comfort of their home, thereby reducing the risk of exposure to the virus.

The Zacks Rank #2 stock, with a Value Score of A, has a PEG ratio of 0.81, which is currently trading at a discount to its industry’s 1.28. Moreover, the P/E stands at 11.89, trading at a discount to its industry’s P/E of 16.09. Apart from this, the company has a long-term expected growth rate of 14.6%. Although shares of the company gained 8.2% in the past three months, it underperformed the industry’s rally of 10.8%. However, looking at the company’s strong fundamentals, we expect the stock to rebound.

Patterson Companies, Inc. PDCO consistent efforts to drive profitability in core business look impressive. We believe that a diverse product portfolio, strong veterinary business prospects, accretive acquisitions and strategic partnerships are acting as primary catalysts. Riding on the robust performance, the company raised outlook for fiscal 2020, thereby instilling investor optimism in the stock.

The Zacks Rank #1 stock, with a Value Score of A, has a PEG ratio of 2.46, which is currently trading at a discount to its industry’s 3.33. Moreover, the P/E stands at 16.80, trading at a discount to its industry’s P/E of 32.45. Apart from this, the company has a long-term expected growth rate of 6.8%. Over the past three months, it has rallied 49.4%, outperforming the industry’s growth of 11%.

Zacks Top 10 Stocks for 2020

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Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report
 
Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report
 
Anthem, Inc. (ANTM) : Free Stock Analysis Report
 
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