It was a legal award large enough to grab headlines – and the public’s attention.
Then again, an Oklahoma court recently ordered Johnson & Johnson (JNJ) to pay $572 million for contributing to America’s opioid crisis, one that causes more than 40,000 deaths a year.
JNJ says it will appeal the ruling. So, at this point, we can’t predict what the final amount will be.
But this much is clear – we need some type of technology that can provide accurate opioid patient monitoring, both in the hospital and the home.
And the good news for tech investors is there is, in fact, a terrific company that aims to solve this problem.
This is a stellar firm that has been at the forefront of non-invasive patient monitoring since 1989.
That’s a big part of the stock’s success. It often doubles the return of the S&P 500, something it’s already done all year.
And today, I’m going to run it through my five filters for scoring market-crushing gains that you can follow along with…
This is a story that hits close to home. My wife and I learned just days ago that a family friend of 20 years died of a suspected drug overdose.
We haven’t read the death certificate, but folks in our circle are all speculating that she died after overdosing on an opioid.
Here’s the thing. With 400,000 deaths from these drugs every decade, odds are good you will know at least one person who falls victim.
This is exactly why the Trump Administration recently approved $1.8 billion more to combat the crisis. That would bring funding for opioid treatment and prevention grants to states and local communities since Trump took office to $9 billion.
Enter Masimo Corp. (MASI).
The firm is a leader in non-invasive medical monitoring systems that has been pushing for greater patient safety for many years now.
Last December, it got an award from the FDA to help develop medical devices that improve tracking of opioid uses and treatments for patients.
Let me be clear. I’m not recommending the stock just for this reason. My guess is it won’t add much to the bottom line for a while.
But it’s the reason for Masimo’s work with the FDA on this vital matter that is so important.
Fact is, Masimo is one of the best medical device makers in the world. Its opioid monitoring will be built on its Patient SafetyNet platform already in use in more than 400 U.S. hospitals.
On top of all that, some 70 leading medical brands have incorporated Masimo’s technology into more than 200 of their own brands through highly lucrative licensing agreements.
That makes this a great “three-fer.” With this one stock, we get a company that has great branded products, is a global supplier to the medical device sector, and may help stem the tide of opioid deaths.
Make no mistake. This is a great med-tech firm. With that in mind, let’s run through the five filters I use to find market-crushing tech leaders.
Take a look:
Rule No. 1: Great Companies Have Great Operations
These are well-run firms with top-notch leaders.
The firm has a CEO/founder who is second to none in the medical device market. But you wouldn’t know it from the firm’s website or marketing materials.
Joe Kiani just may be the quietest leader in all of healthcare. With little fanfare, he pioneered the entire non-invasive patient monitoring field when he founded the firm in 1989.
Most of his publicity comes from his drive to use cutting-edge medical monitoring to reduce patient deaths. In 2010, he put down $10 million of his own money to fund the Masimo Foundation to improve patient safety.
Rule No. 2: Separate the Signal From the Noise
To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.
These guys are anything but a hype machine. There’s no fancy marketing or buzz words. Instead, their website offers a very straightforward look at a company that’s actually remained at the leading edge of its field for the past 20 years.
Masimo has very strong fundamentals. It boasts a 23% operating margin and a 21% return on equity. It has nearly $588 million in cash on hand and almost no debt.
Rule No. 3: Ride the Unstoppable Trends
Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
There’s no question that Masimo has this base covered. Medical devices aren’t immune from political concerns about rising health costs, but those that improve patient outcomes and lower costs should do particularly well in the years ahead.
None other than the U.S. Department of Commerce says the overall medical device market should be worth $208 billion by 2023, compared with $156 billion in 2017.
MarketsandMarkets also sees the patient monitoring segment on the rise. It estimates the field will be worth $20.2 billion, which will rise roughly 50% in eight years to $31.5 billion.
Rule No. 4: Focus on Growth
Companies that have the strongest growth rates almost always offer the highest stock returns.
Between 2007 and the end of last year, the firm had an average sales growth rate of 13.5%. During that period, sales climbed from $200 million to $830 million.
The firm keeps adding new-branded products, as well as parts for larger healthcare firms. Its list of products and parts now covers several web pages.
For instance, on Sept. 9, it announced three new platforms for patient monitoring. Five days before that, it unveiled a new plug-in feature for hospital monitoring of newborns.
Rule No. 5: Target Stocks That Can Double Your Money
This is where we look at the firm’s earnings growth and see how long it will take the firm to double profits. By doing that we can figure out how long on average it should take for the stock to roughly double.
I’ve gone through the firm’s financials in detail and I’m projecting earnings per share (EPS) will grow by an average 22% over the next five years.
Now we use what I call my doubling calculator. Mathematicians call it the Rule of 72. Let’s divide the compound growth rate of 22 into the number 72. We find that it should take just a little more than three years for Masimo to give us 100% gains.
With a market cap of $8 billion, the stock trades at roughly $152 a share. Since the market rebounded on Dec. 24, the stock is up 54%, a little more than double the S&P in that period.
Please don’t let that quick return scare you off this winner, though. We have another double in the making here.
As you can see, it doesn’t take many great tech stocks like Masimo to get you to financial freedom.
Cheers and good investing,
Michael A. Robinson