In recent months, diabetes stocks have retreated sharply, partly due to the increased popularity of the weight-loss drug Semaglutide. Some have contended that Semaglutide will greatly reduce the number of people suffering from diabetes in America. But, I believe that this thesis is misguided for three reasons.
First, the drug only reduces patients’ weight by 15%-20%. Even after losing that amount of weight, a high percentage of Americans will still be meaningful overweight and obese, rendering them vulnerable to diabetes. Secondly, the drug is administered through an injection once a week and loses its effectiveness after patients stop taking it. And the drug can result in some significant, negative side effects. This increases the chances that patients will stop taking it after a relatively short amount of time. Given these points, I believe that investors should buy these three diabetes stocks while they are in a downturn.
DexCom (DXCM)
On July 27, DexCom (NASDAQ:DXCM) reported strong second-quarter results, showing that its business is growing rapidly and remains quite profitable. Specifically, the company’s revenue jumped 25% versus the same period a year earlier to $871 million. Meanwhile, its operating income came in at $128 million, up from $77 million during the same period of 2022.
Also encouraging is the fact that, since Dexcom released its new G7 glucose monitoring device, 8,000 new doctors, who had not previously prescribed Dexcom’s devices, have started prescribing the G7.
And finally, earlier this month, DXCM noted that patients starting to take Semaglutide have tended to use its glucose-monitoring devices more often than other patients.
Analysts, on average, expect DexCom’s EPS to surge in 2024 to $1.61 versus 87 cents in 2022.
Insulet (PODD)
Matt Taylor, an analyst at investment bank Jefferies, recently raised his rating on Insulet (NASDAQ:PODD) to a buy from hold citing the stock’s 50% drop between May and September. Taylor believes that the insulin pump maker’s stock now reflects all of the potential impact from Semaglutide on the company.
Moreover, after reviewing a survey of doctors, the analyst believes that many “patients will continue to develop Type-2 diabetes in the coming years, with enough progressing to insulin use to keep Insulet..growing apace,” Barron’s contended.
Put another way, Taylor wrote that Insulet’s growth opportunity will not be materially ruffled by weight-loss-drug use.
Analysts, on average, expect Insulet’s EPS to come in at $2.24 next year, up from $1.28 in 2022, showing that the company’s profitability is growing by leaps and bounds.
Tandem Diabetes (TNDM)
Like Insulet, Tandem (NASDAQ:TNDM) makes insulin pumps for diabetes patients. TNDM stock has tumbled roughly 50% since mid-April.
In July, Tandem released what it called the world’s smallest durable automated insulin delivery system. In this case, smallness certainly has its advantages, since it will make carrying the pump around quite convenient for diabetes patients. And despite its small size, the device includes a 200 dose cartridge.
As I noted in the previous section on Insulet, Jefferies analyst Matt Taylor believes, after studying a survey of doctors, that the overall number of diabetes patients will keep growing rapidly. Consequently, he expects Tandem to continue growing rapidly going forward too.
Indeed, the company’s installed base surged 16% in Q2 versus the same period a year earlier, while analysts, on average, expect its revenue to climb to $866 million next year from $7898 million in 2023.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
