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Medical Stock Investing: 2018 Update

Aug. 02, 2018 9:37 AM ETABBV, ABMD, ABUS, CYRX, ILMN, ISRG, MDGL, TNDM8 Comments
Leonard Yaffe profile picture
Leonard Yaffe


  • At the end of December, I discussed my view of the stock market and the opportunities regarding medical stocks. My DJIA price target was 27,000, which I continue to maintain.
  • I felt, as I do now, that the outlook for the biopharmaceutical industry had never been more favorable. We are on the verge of another great era in drug discovery.
  • I believe that stock valuations are in "relative equilibrium", which makes individual stock selection of paramount importance.
  • In the drug sector, stock performance will be data driven; for medical device stocks, earnings will be the key.
  • I remain favorably inclined toward two of my longstanding favorite market leaders, Intuitive Surgical and Illumina.

Given that we are just past the midpoint, I thought it would be a good time to review and update my 2018 forecast and stock picks. As I suggested, 2018 has turned out to be a stockpicker's year. The fundamentals of the US healthcare industry remain strong, as demographics, chronic disease prevalence and an improved employment market provide for favorable tailwinds.

As for my investment themes, one focus is on leading companies, notably Intuitive Surgical (ISRG) and Illumina (ILMN). They are leaders in their respective fields (robotic surgery and next-generation sequencing), and the technologies they have are revolutionary. While the stocks are expensive, I remain a buyer as I expect consensus-exceeding growth to continue. Intuitive Surgical is facilitating and improving less invasive surgery with its robotic systems. Furthermore, as I have stated for years, competition is less significant than is perceived, given that two generations of surgeons have been trained on da Vinci systems and they, and the associated hospitals, are unlikely to switch. Furthermore, the company continues to innovate, broadening the applicability and surgical specialties that would benefit.

Illumina is a leader in next-generation sequencing, which is driving advances in genomics, molecular biology and drug discovery. This revolution is still in the "early innings". Cancer immunotherapy will continue to result in improved outcomes for decades. Whereas Cryoport (CYRX), as a derivative beneficiary, has performed well in 2018 (+74%), Novartis (NVS) is flat. I view both positively. Although the CRISPR/Cas9 stocks have done well as a group, concerns have been raised about the technology and implications regarding genetic damage. Therefore, I have reduced my exposure to this area, pending fuller appreciation of the risks.

AbbVie (ABBV), one of my favorite stocks, is down 3% this year due to a setback with Rova-T (not part of my thesis) and concerns regarding Humira biosimilars. I expect

This article was written by

Leonard Yaffe profile picture
I am an MD by background who runs a healthcare hedge fund. I worked as a sell-side medical analyst for 20 years, covering pharmaceuticals, medical devices, PBMs and drug distributors.

Analyst’s Disclosure: I am/we are long ISRG, ILMN, ABBV, TNDM, ABMD, CYRX, NVS, NTLA, MDGL, ABUS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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