Key Points
Medtronic (NYSE: MDT) is out of favor today, noting it has a historically high dividend yield of around 3%. The company is working on improving its business performance, however, and stronger results are likely on tap. That could make Medtronic one of the best healthcare stocks you can buy today.
Medtronic was in a funk
As a medical device maker, investing in research and development is a key aspect of Medtronic’s business. Only R&D is an inherently lumpy effort, not to mention a time-consuming and expensive one. At least part of the downbeat view around Medtronic today is related to the fact that it went through a development dry spell. That, however, is beginning to change with the company’s new surgical robots and cardiac ablation systems starting to gain traction.
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That, however, is just the start of the investment thesis around Medtronic. It has also been attempting to focus on its most profitable businesses. The next big move on this front will be the spinoff of its diabetes treatment division, which will be immediately accretive to earnings. That’s because the rest of the healthcare giant’s businesses (in the cardiovascular, medical surgical, and neuroscience niches) have higher profit margins than does the diabetes division.
The big picture here, however, is that as new products come on line, the company’s earnings growth could be faster than Wall Street is currently expecting. Higher profit margins, essentially, should help supercharge the increased revenues from R&D developments. All in, you get to collect a high yield today while you wait for investors to catch up to the improving fundamentals of Medtronic’s business. When they do catch up, the market could quickly go from being bearish on the stock to being bullish.
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Reuben Gregg Brewer has positions in Medtronic. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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