A team of Wells Fargo Securities, LLC (Wells Fargo) analysts have identified a new phase of the COVID-19 pandemic and is recommending investors buy orthopedic names now.
Wells Fargo has been providing updates on investment themes during the COVID-19 pandemic. During phase one of the pandemic, Wells Fargo recommended buying Baxter International Inc. and Johnson & Johnson. During phase two, Wells Fargo recommended investors focus on ambulatory surgery centers (ASCs). It believed that procedures performed in ASCs would be allowed to resume before hospital inpatient surgeries.
On February 19, 2020, the S&P 500 peaked and has since declined by 15.4%. Prominent names in orthopedics have underperformed during this time. COVID-19 has delayed many orthopedic procedures which have been viewed as elective. Wells Fargo believes that the COVID-19 pandemic is entering phase three and that investors will see orthopedic procedures recover quicker than anticipated. Wells Fargo recommends buying orthopedic names now including Globus Medical Inc., Johnson & Johnson, NuVasive, Inc., SeaSpine Holdings Corporation, Stryker Corporation, and Zimmer Biomet.
These recommendations are based on short-term expectations. Wells Fargo is wary of long-term expectations for orthopedic procedures. It attributes its caution to high rates of unemployment reducing the demand for orthopedic procedures and a dwindling funnel of new orthopedic patients.
Since February 19, 2020, Wells Fargo reports that “both the small/mid-cap MedTech index (-6.0%) and the large-cap MedTech index (-7.8%) have outperformed the index.” Since the S&P 500 index reached its highest point in the bull market, Wells Fargo reports the following performance for orthopedic share prices: Globus Medical (-19.0%), Stryker (-19.9%), NuVasive (-28.0%), Zimmer Biomet (-29.8%), SeaSpine Holdings (-36.4%).
Wells Fargo attributes the success of Johnson & Johnson (+1.0%) during the COVID-19 pandemic to its pharma and consumer health businesses. It notes that orthopedic devices are a less significant portion of Johnson & Johnson’s overall sales. It also notes that Stryker is acquiring Wright Medical Group N.V. and that is why the group is only down 2.5%.
This analysis was provided by a team of medical tech analysts led by Wells Fargo Senior Analyst Larry Biegelsen, including Lei Huang, Shagun Singh, and Kevin Farshchi.
