4 Growth Stocks To Pick From A Choppy MedTech Market
Zacks Investment Research | Dec 13, 2017 10:24PM ET
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.
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