Given the unwavering demand for healthcare products and services, the medical sector is poised for enduring resilience. Rising health consciousness among the populace, escalating needs for tailored treatments, increased employment of clinical diagnostics by healthcare providers, and technological advancements may all offer considerable advantages to the medical diagnostic industry.

Given the industry tailwinds, affordable and fundamentally strong medical stocks Harvard Bioscience, Inc. (HBIO), Surmodics, Inc. (SRDX), and Semler Scientific, Inc. (SMLR) could be wise portfolio additions this week.

The timeless adage, "prevention is better than cure," holds paramount significance in the healthcare sector – an idea being increasingly realized thanks to the expansion of the diagnostics market. The medical and diagnostics laboratory services industry, a burgeoning sector dedicated to precisely analyzing biological samples, is witnessing rapid growth.

Key propelling factors like an aging global population, rising incidence of chronic illnesses, and escalating demand for personalized medicine and precision diagnostics fuel this market's expansion.

Concurrently, the sector is embracing innovative medical technologies that encourage early intervention to treat potential health threats. The industry is leaning toward the increased utilization of automated platforms for disease prevention, detection, and management. Health service providers are deploying clinical diagnostics to devise custom-tailored therapies from rigorous diagnostic tests.

The global clinical diagnostics market is anticipated to reach $105.91 billion, growing at a 6.1% CAGR by 2028.

Moreover, the digital health platform is evolving rapidly, driven by widespread smartphone usage and the global rise of health-centric applications. The sector is set for further growth with substantial investments in healthcare IT infrastructures across both developing and advanced nations. The global digital health market is projected to surpass $780.05 billion, growing at a CAGR of 16.1% by 2030.

With these favorable trends in mind, let's delve into the fundamentals of the three Medical - Diagnostics/Research stock picks, beginning with the third choice.

Stock #3: Harvard Bioscience, Inc. (HBIO)

HBIO develops, manufactures, and sells technologies, products, and services for life science applications in the United States and internationally. The company offers cellular and molecular technology products, other equipment for molecular-level testing and research, and in vitro systems for extracellular recording.

On September 18, HBIO announced its agreement with Etisense to supply and distribute the DECRO miniature telemetry jacket platform and associated physiological monitoring software for pre-clinical research.

HBIO’s trailing-12-month cash from operations is $8.69 million, compared to the industry average of negative $19.29 million. Also, its trailing-12-month gross profit and EBITDA margins of 56.53% and 6.22% are 1.5% and 19% higher than the industry averages of 55.72% and 5.23%, respectively.

In terms of forward EV/EBITDA, HBIO is trading at 11.96x, 7.5% lower than the industry average of 12.93x. The stock’s forward EV/Sales multiple of 1.87 is 45.4% lower than the industry average of 3.43.

For the fiscal second quarter that ended June 30, 2023, HBIO’s revenues stood at $28.76 million, while its gross profit grew marginally year-over-year to $16.67 million. Its adjusted operating income stood at $3.57 million, up 16.8% from the year-ago quarter.

Its adjusted EBITDA came at $3.90 million, up 14.8% year-over-year. Its adjusted net income and earnings per share stood at $1.69 million and $0.04, respectively. In addition, as of June 30, 2023, total current liabilities came at $22.94 million, compared to $23.25 million as of December 31, 2022.

Street expects HBIO’s EPS to come at $0.04 in the fiscal third quarter (ending September 2023), while its revenue is expected to grow 3.6% year-over-year to $27.90 million. Moreover, for the fiscal year ending December 2023, its revenue and EPS are expected to increase 3.2% and 75% year-over-year to $116.95 million and $0.21, respectively.

HBIO’s shares have gained 48% year-to-date to close the last trading session at $4.10. Over the past six months, the stock gained 40.4%.

HBIO’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an A grade for Growth and a B for Value. In the Medical - Diagnostics/Research industry, it is ranked #5 out of the 50 stocks.

To see additional POWR Ratings for Momentum, Stability, Sentiment, and Quality for HBIO, click here.

Stock #2: Surmodics, Inc. (SRDX)

SRDX provides performance coating technologies for intravascular medical devices and chemical and biological components for in vitro diagnostic immunoassay tests and microarrays in the United States and internationally. It operates in two segments: Medical Device and In Vitro Diagnostics (IVD).

On June 20, SRDX announced receiving FDA premarket approval for its SurVeil™ drug-coated balloon (DCB). The SurVeil DCB, a next-generation device that utilizes best-in-class technology to treat peripheral artery disease, might be now marketed and sold in the U.S. by the company’s exclusive distribution partner, Abbott Vascular, Inc.

SRDX will also receive a $27 million milestone payment from Abbott. The company expects to recognize approximately $24 million to $24.5 million in revenue related to the milestone payment in the fiscal third quarter of 2023.

SRDX’s trailing-12-month asset turnover ratio of 0.72x is 91% higher than the 0.38x industry average. Its trailing-12-month levered FCFC margin of 16.83% is significantly higher than the 0.26% industry average.

SRDX’s forward Price/Sales of 3.57x is 6.2% lower than the industry average of 3.81x. Its trailing-12-month EV/Sales multiple of 3.50 is 3.4% lower than the industry average of 3.62.

For the fiscal third quarter that ended June 30, 2023, SRDX’s total revenue grew 111.2% year-over-year to $52.48 million. Its operating income stood at $21.41 million, compared to an operating loss of $7.14 million in the year-ago quarter. Its adjusted EBITDA came at $24.59 million, compared to a negative $3.05 million in the prior-year quarter.

The company’s non-GAAP net income and EPS stood at $7.33 million and $0.52, compared to non-GAAP net loss and loss per share of $4.72 million and $0.34, respectively. As of June 30, 2023, SRDX’s total current assets stood at $85.85 million, compared to $57.59 million as of September 30, 2022.

For the fiscal year 2023, the company expects total revenue between $130 million and $132 million, representing an increase of 30% to 32% compared to the prior year.

For the fiscal fourth quarter ending September 2023, SRDX’s revenue is expected to increase 1.1% year-over-year to $26.27 million, whereas its EPS is expected to come at $0.17. Additionally, it has topped consensus revenue and EPS estimates in each of the trailing four quarters.

Shares of SRDX have gained 11.3% over the past year to close the last trading session at $33.09. Over the past six months, it gained 92.4%.

SRDX’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.

SRDX has an A grade for Growth, Sentiment, and Quality. Within the same industry, SRDX is ranked #4.

Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, and Stability. Get all ratings of SRDX here.

Stock #1: Semler Scientific, Inc. (SMLR)

SMLR provides technology solutions to improve healthcare providers' clinical effectiveness and efficiency in the United States. It offers its products through salespersons and distributors.

SMLR’s trailing-12-month asset turnover ratio of 0.97x is 158.9% higher than the 0.38x industry average. Its trailing-12-month EBIT and levered FCF margins of 33.28% and 24.54% are significantly higher than the industry averages of 0.35% and 0.26%, respectively.

SMLR’s forward non-GAAP P/E of 11.58x is 40.6% lower than the industry average of 19.50x. Likewise, its forward EV/Sales and EV/EBITDA multiples of 2.05 and 5.70 are 40.2% and 55.9% lower than the industry averages of 3.43 and 12.93, respectively.

For the fiscal second quarter that ended June 30, 2023, SMLR’s revenues increased 25.5% year-over-year to $18.61 million. Its income from operations stood at $7.18 million, up 38.7% from the year-ago quarter.

Net income and net income per share increased 44.3% and 47.1% year-over-year to $5.88 million and $0.75, respectively. In addition, as of June 30, 2023, its total current assets stood at $60.75 million, compared to $48.91 million as of June 30, 2022.

Street expects SMLR’s revenue and EPS to increase 8.2% and 10.9% year-over-year to $15.20 million and $0.51, respectively, in the fiscal third quarter (ending September 2023). Additionally, it has topped consensus EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters.

The stock gained 36.7% over the past six months to close its last trading session at $27.33. Over the past three months, it gained 6%.

SMLR’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.

SMLR has an A grade for Quality and a B for Growth, Value, and Sentiment. It is ranked first within the Medical - Diagnostics/Research industry.

Click here for the additional POWR Ratings for SMLR (Momentum and Stability).

43 Year Investment Pro Shares Top Picks

Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…

Steve Reitmeister’s Trading Plan & Top Picks >

SRDX shares were trading at $32.25 per share on Thursday morning, down $0.84 (-2.54%). Year-to-date, SRDX has declined -5.48%, versus a 14.78% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

More...