The year 2023 has experienced a volatile global economic condition as in the initial months, many sectors rebounded with the opening of lockdowns in several regions. The implementation of bold fiscal stimuli and relief initiatives to spur economic growth positively impacted investment trends globally. However, pressures in the form of inflation, corporate restructuring, difficulties with demand forecasting and geo-political tensions (particularly the Russia-Ukraine, Isael-Hamas and Taiwan-China conflicts) had an adverse impact on overall economic growth.

Amid the gradually transforming investment market, the MedTech sector has been losing its footing through 2023. Particularly, companies engaged in COVID-19-related treatment options continued to significantly lose steam, causing a downbound trend in stock prices. However, after the pandemic was officially declared over, the industry also started to witness a significant consumption push across all essential and non-essential categories.

Here, we discuss three beaten-down stocks of 2023, which are gradually bouncing back, banking on the overall market improvement and their strategic initiatives. These fundamentally-sound stocks currently trading below their actual potential are Prestige Consumer Health, Inc. (PBH Quick QuotePBH - Free Report) , Quest Diagnostics Inc. (DGX Quick QuoteDGX - Free Report) and Hologic, Inc. (HOLX Quick QuoteHOLX - Free Report) .

MedTech Biggies in Discounted Territory

Although the MedTech industry recovered significantly post-pandemic, 2023 has still been a year of disruptions with pressures coming from macro factors such as inflation, high cost of capital, market volatility, regulatory changes and a slow M&A environment.

In 2023, equity investment in medical device companies fell to its lowest point in seven years, declining 27% to $13.8 billion, according to MedTech Device report.

The widespread and stretched panic selling of MedTech stocks over the past few quarters dragged down share prices significantly.

In line with this, Bio-Rad Laboratories, Inc. (BIO Quick QuoteBIO - Free Report) posted a 3.9% year-over-year decline in the operating profit in third-quarter 2023. Macroeconomic factors, particularly the ongoing labor unrest, rising wage and raw material costs and the ongoing geopolitical unrest are leading to a significant escalation in the company’s operating expenses.

Coming out of the COVID-19 pandemic, medical device companies experienced revenue growth as patients began to return for procedures. The indispensable nature of the healthcare industry makes it an ever-growing industry. Although MedTechs have been grappling with a tumultuous global economy, they are able to deliver an impressive return to investors.

MedTech in 2024

As 2024 approaches, the MedTech industry is expected to witness improving supply chains, fewer inflationary headwinds and less pronounced pricing headwinds. Strong sector fundamentals like robust procedure volumes and capital equipment order backlogs, a sharpened focus on profitability and consistent top-line growth, paired with reduced inflation and a better financing environment, can fuel MedTech stocks back to outperformance.

According to a report by MarketsandMarkets, the global MedTech industry market size is estimated to grow from $642.5 billion in 2023 to $668.2 billion by 2024.

3 Stocks to Focus

Thanks to escalating macroeconomic uncertainty, investors can turn their attention to the MedTech sector, as many stocks are trading at irresistible discounts. The low valuations, however, provide investors with the ideal opportunity to pick high-potential stocks with attractive prospects.

To narrow down the list, we have selected those with a Value Style Score of A or B. Our research shows that stocks with a Value Score of A or B.

Listed below are three companies that have the potential to turn profitable for investors.

The first company is Prestige Consumer Healthcare, carrying a Zacks Rank #2 (Buy) and a Value Score of B. The company emphasizes brand-building and product innovation in niche consumer healthcare categories to improve the lives of its consumers. These long-term brand-building efforts, combined with efficient marketing, channel development and innovation that drive long-term brand and category growth, have helped the company’s brands to hold the leading market share position consistently.

In the first half of fiscal 2024, the company experienced strong 6% consumption growth across the eCommerce channel, simultaneously maintaining a consistent profit profile across all its distribution channels. These impressive wins with consumers across e-commerce, through investments in online content and digital advertising, have positioned the company for further growth.

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The company’s earnings yield of 7.24% compares with the industry’s (0.44%). The company’s earnings per share (EPS) are expected to grow 2.4% year over year in 2024. The stock has declined 12% in the past year against the industry’s 1.9% rise. You can see the complete list of today’s Zacks #1 Rank stocks here.

The second company to consider is Quest Diagnostics, carrying a Zacks Rank 3 (Hold) and a Value Score of A. The acquisition of Haystack Oncology places the company in a strong position to enter the high-growth area of minimal residual disease or MRD testing. The post-acquisition integration remains on track and the company expects to introduce the first MRD test in early 2024 from the Oncology Center of Excellence in Lewisville, TX — where the solid tumor expanded panel for tumor sequencing and therapy monitoring was introduced.

Quest Diagnostics finds great potential in generative AI to deliver insights and content to better target and serve customers as well as create innovations that help standardize its lab operations. These initial pilot results of utilizing generative AI in service centers to automate customer sentiment analysis and quality control and improve market research and customer targeting in marketing operations are encouraging.

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The company’s earnings yield of 6.65% compares with the industry’s 3.82%. The company’s earnings per share are expected to grow 3.4% year over year in 2024. The stock has declined 5.6% over the past year against the industry’s 8.5% rise.

The final company on our list is key global medical technology player Hologic. The company carries a Zacks Rank #3 and a Value Score of B. Hologic has invested in AI technologies to enhance the diagnostic accuracy of its imaging devices, particularly in the area of mammography. AI algorithms aim to assist healthcare professionals in interpreting medical images with greater precision.

The company has developed AI-driven solutions for remote patient monitoring, enabling personalized and proactive healthcare interventions. The company developed Genius AI Detection 2.0, a deep-learning-based software that detects potential cancers in breast tomosynthesis images. With the growing potential of AI in healthcare, Hologic is well-positioned to scoop up growing market opportunities in the coming years.

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The company’s earnings yield of 5.46% compares with the industry’s (5.42%). The company’s earnings per share are expected to grow 0.8% year over year in 2024. The stock has declined 7.6% over the past year compared with the industry’s 0.5% fall.