SWAV - Buying These 4 Hated Names Devastated By The GLP-1 Hype

2023-11-26 22:07:39 ET

Summary

• The article discusses the factors that have led to the undervaluation of the MedTech sector, including the rise in interest rates, opposition to corporate acquisitions by the FTC, and the impact of GLP-1-based treatments.
• I defend the importance of MedTech interventions and highlight several companies in the sector that are poised for recovery, including DexCom, Medtronic, Shockwave Medical, and AtriCure.
• The article provides charts and analysis for each of the mentioned companies, suggesting potential buying opportunities for investors.

This is the 3rd article in this "Hated Stock" series, why am I taking this approach?

My thesis is that the past two years have created a distortion in valuations. The primary pressure was of course the Fed and the sharp rise in rates, another distortion is the overactive approach of the FTC that opposes nearly every corporate acquisition. For the medtech names featured here, we layer on top of this the notion of the pressure of the advent of drugs that mimic glucagon-like peptide-1 agonists, they stimulate the body to produce more insulin. These are all unrelated catalysts, and yet taken together they all have served to destroy tightly-help guide-posts that make it easier to lose conviction in different sectors for these various causes. For the first, the rise of rates, that took down the value of profitless growth. Yes, it had gotten to an extreme, however, using free cash flow to invest in future products and expanding addressable markets in many cases is the right thing to do. As far as suppressing corporate acquisitions, many small bio and medtech companies labor mightily in the research and development of a product, treatment, or service knowing that they are creating value that will be realized for investors by acquisitions, the emergence of an oppositional FTC already suppressed valuation. Many claim that the pandemic had a lot to do with suppressing demand for medical devices as well. However, I find it difficult to understand someone putting off vital heart surgery to install a heart valve to keep body and soul together. The GLP-1-based treatments merely contributed to the coup de gras devaluation of many MedTech names. As I have demonstrated the effect of the first two factors allowed me to surface stocks in other categories of technology you may want to peruse those as well: Buy These Stocks ; Members Of The Most Hated Tech Sector and Buy These 4 Hated Techs Focused On The Little Guy

Let me first state defend the GLP-1 phenomenon

I want to disabuse anyone reading this piece of the notion that Wegovy, Mounjaro, and now Zepbound, are not game changers. That is not the thrust of this piece's logic. I just want to take advantage of the exaggerated narrative that all kinds of treatments are going to be obsolete. They will change the lives of millions, potentially saving people from not only heart disease and stroke but also a long list of other ailments. That is not what this article is focused on. There are millions of others who still need intervention by advanced medical technology. Yes, I believe that the MedTech sector has been unfairly abandoned, dare I say with abandon? Even if every clinically obese person and severe diabetic begins the GLP-1 course of treatment, there will still be millions of new emerging patients who will need intervention.

Here are several names that are involved with cardiac, arterial, and diabetic interventions that are every bit as vital and necessary as they were 18 months ago. Some names have already started to recover like DexCom (DXCM), other names I want to highlight are Medtronic (MDT), Shockwave Medical (SWAV), and AtriCure (ATRC). Let's chart them alphabetically and then talk about each one

ATRC 6-Month Chart

What a super interesting chart! The green line is a "Rising W" a very bullish formation that resulted in a bisection of the diagonal blue line that we see marking a nearly 4-month downtrend. On the left are the two black parallel lines highlighting the overhead supply of stranded shareholders who could have been underwater for months and might just want their money back. So ARTC has some work to do in order to break higher, which I think will happen. Let's take a look at what ARTC does, then we can understand why it was sold off so unfairly. As far as financial performance Worldwide revenue 18.1% increase year over year a positive adjusted EBITDA of $4.7 million, a significant improvement from a negative $0.7 million in Q3 2022. Average 1-year price target of 55, offering a 30% upside. Looking at the chart I think ATRC, I would start (which I already did) a position now, and then hold some cash in reserve in case the current breakout confronting this overhead resistance will retreat a bit and consolidate before making future gains.

Chart of DXCM

I am wondering if all the charts are going to look this way. In this case, I decided to highlight the overhead resistance with this oval. The dotted line is the bottom edge of the oval and just at where DXCM ended its strong march upward. As I would advise with ARTC buy a tiny bit now, and add a little in the low 90s and below. So why this name? I actually bought some at 81 earlier in the year, but I would love another bite of the apple at a better price. DXCM is the premier CGM device on the market the other significant competitor in this space is MDT. DXCM is the leader of a very large addressable market that DXCM is only scratching the surface of. Just remember there are a ton of diabetics type-1 which is genetic and not body-weight related. There will be a lot of type 2 diabetics who aren't morbidly obese that will greatly benefit from monitoring their glucose. Also, we have no idea how long those taking these GLP-1 treatments will be able to stay on it. Right now it is hard for me to imagine that insurance companies will keep paying after someone loses all that weight. They will be encouraged into other alternatives even bariatric surgery, and certainly using a CGM to manage their glucose. I have a position with a cost basis of about 78 so I would need another sell-off to add.

MDT 6-month Chart

Another familiar-looking chart at this point. Except the black line marks out what looks like light resistance. I just recently invested in this name, and the earnings report was the prompt for me to become a long-term shareholder. MDT did have execution issues in the last few years but they have turned the corner. I just got in around 78, and I would jump at the chance to add more even 3 or 4 points lower. Yahoo Finance's average 1-year price target at 90. I think it can go higher. It has a 3.5% Dividend while you wait. They just launched a robotic surgery system, and they have a competitive CGM device, though not as good as DXCM the market is huge. This is a very diversified MedTech company it would take many paragraphs to list all the sectors they address. It recently reported strong earnings and raised its annual profit forecast for the second time this year, based on higher demand for its medical devices. It now expects profit to be between $5.13 per share and $5.19 per share for the fiscal year 2024, above the range of $5.08 per share to $5.16 per share expected previously. If you ask me to choose between all 4 names this one and the next name SWAV would get my next incremental dollar for the long-term

SWAV 6-month Chart

I readily admit that this is not the best-looking chart. We could easily do another test of the bottom. This is such an interesting use of ultrasound, breaking up arterial calcium deposits that perhaps I am not assessing the prospects of this name properly. Well according to Yahoo Finance, the average of the 1-year price target is an estimated 242.55 that's a strong upside. The 52WH is 315.95 so it could get stronger. SWAV Reported recently with Q3 earnings of 92 cents per share, beating consensus by 13.6%. The company reported an EPS of 68 cents in the year-ago quarter. Revenues totaled $186 million, up 42% from the prior-year period. The top line also beat the Consensus Estimate by 0.6%. No, I think SWAV is an exciting name to own for the long term. I am excited to continue to build my SWAV position. Wednesday will be the next article in the "Hated" series. I am surfacing long-term investing ideas not trades as the year comes to a close I think the rally will become more widespread. My thesis is that stocks that were beaten down in the last two years might have shown their lows for a sustainable period of time. In this case, MedTech has already paid its dues.

Happy trading!

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