Stocks to buy

3 AI-in-Healthcare Stocks to Buy for Outsized Returns

Across industries, companies will need to adopt AI for growth and survival. A PricewaterhouseCoopers indicates that by 2030, AI could contribute up to $15.7 trillion to the global economy. Of this, “$6.6 trillion is likely to come from increased productivity and $9.1 trillion is likely to come from consumption-side effects.” There is therefore no denying the big impact of AI across industries.

One area that’s likely to witness robust growth is AI in healthcare. Be it early detection of diseases, minimally-invasive robotic surgery, or data in healthcare, AI will play an important role. I would therefore recommend exposure to quality AI healthcare stocks for multibagger returns.

Coming back to the impact of AI in the healthcare industry, it’s estimated that the healthcare AI market will be worth $188 billion by 2030. Further, AI in healthcare has the potential to save 250,000 lives annually.

With this overview, let’s discuss three AI healthcare stocks that can be value creators.

Medtronic (MDT)

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Medtronic (NYSE:MDT) stock has been subdued with negative returns of 13% in the last 12 months. However, at a forward P/E of 14.5, MDT stock looks attractively valued and provides a dividend yield of 3.56%.

As an overview, Medtronic sells device-based medical therapies to healthcare system globally. Specific to the use of AI in healthcare, Medtronic has made significant inroads. The company’s GI Genius intelligent endoscopy is the “first-to-market, computer-aided polyp detection system powered by AI.”

The healthcare company has also developed “surgical robots that are compatible with AI platforms.” Using technology to boost the growth of personalized medicine is another area where Medtronic is active. Overall, Medtronic has six AI products that are already U.S. Food and Drug Administration approved.

An important point to note is that Medtronic reported free cash flow of $5.2 billion for FY2024. With high financial flexibility, the company is well positioned to invest aggressively in the medical technology market.

Stryker Corporation (SYK)

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Stryker Corporation (NYSE:SYK) stock has been in a gradual uptrend in the last 12 months. The medical technology company however looks attractive considering the growth outlook and margin expansion potential.

The impact of Stryker on innovation is evident from the point that the company has 23 patents in artificial intelligence in Q4 2023. With various AI products, the company is positioned to increase revenue from the medical technology business.

As an example, the Stryker Mako robot has been used in thousands of procedures. The company plans to launch spine and shoulder application for the Mako robot this year. Additionally, Stryker has been active on the acquisition front and that’s a potential growth accelerator. Recently, Stryker completed the acquisition of Artelon, which provides soft tissue fixation solutions.

It’s worth noting that in 2022, Stryker reported operating margin of 23.8%. By 2025, the company expects margin to increase to 26.3%. Beyond this period, an annual margin expansion of 30 basis points is likely. This will translate into higher cash flows and will allow the company to invest in R&D and technology.

Tempus AI (TEM)

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Tempus AI (NASDAQ:TEM) is a recently listed company that operates in the field of healthcare technology. With robust growth and focus on research and development, I am bullish on TEM stock creating long term value.

For 2023, Tempus AI reported revenue of $531.8 million, which was 65.8% higher on a year-on-year basis. With continued growth in the Tempus platform and with innovation, it’s likely that stellar revenue growth will sustain.

In a recent development, Tempus AI expanded its Immuno-Oncology portfolio with the launch of AI-enabled, multimodal immune profile algorithmic tests. In June, the healthcare technology company received clearance from the U.S. Food and Drug Administration for its “Tempus ECG-AF device that uses AI to help identify patients who may be at increased risk of atrial fibrillation.”

Further, the Centers for Medicare & Medicaid Services has granted advanced diagnostic laboratory test status for the company’s next-generation sequencing assay. The key point is that with R&D, the genomics segment is poised for growth. At the same time, Tempus has one of the world’s largest libraries of clinical and molecular data. This is likely to support growth in the data services business.

On the date of publication, Faisal Humayun 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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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