Medtronic(NYSE: MDT) hasn't been a terribly hot stock to own in recent years. Since 2021, its shares have declined by more than 20%. But recently, investors do appear to have been giving the stock a second look. The business is growing at a time when some companies are struggling due to inflation and people cutting back on spending.
The medical device maker can potentially be a safer option for investors to consider right now. The stock has been picking up steam of late, and there could be a lot more upside and room for it to run even higher, for the following three reasons.
Interest rate cuts could help ignite demand
Medtronic may be an underrated beneficiary of declining interest rates. That's because as rates come down, it becomes less expensive for hospitals and companies that buy Medtronic's devices to finance them. That can help give its growth rate a bit of a boost.
While Medtronic's revenue has been growing in recent years, it may not be growing fast enough to excite many investors. In its most recent quarter (which ended on July 26), revenue rose by just under 3%. If Medtronic can see this growth rate accelerate, which could happen as interest rates come down, that may be what the stock needs to start rallying and for it to attract more growth investors.
MDT Revenue (Quarterly YoY Growth) data by YCharts.
The launch of more products will open up even more possibilities
Although it may not look like a growing business based on its single-digit growth, Medtronic has been expanding its operations. In just the past year, it has obtained approximately 130 product approvals in many key markets. From catheters to neurostimulators to continuous glucose monitoring devices, the company has a broad range of products in its portfolio, and it's routinely coming out with new devices.
While not all products will be strong revenue drivers, collectively they can enhance the company's overall potential in the long run as they give Medtronic many different ways to grow its business in the years ahead. The company has a broad presence in more than 150 countries, and its products help treat over 70 different health conditions. By bringing better and more efficient products to market, that can ensure the business continues to grow, possibly at a higher rate than what it has recently averaged.
Medtronic's modest valuation could set investors up for strong gains
Even if you're hesitant to invest in a company whose results haven't been great in recent years, what could tip the scales for you is Medtronic's modest valuation. The stock currently trades at 16 times next year's earnings, based on analyst projections. That's a fairly low price tag when you consider that the average healthcare stock in the Health Care Select Sector SPDR Fund averages a forward price-to-earnings multiple of nearly 22.
Medtronic is arguably better than your average healthcare stock, and thus should warrant a much higher premium. Yet, it's trading at a discount compared to the average stock. At an attractive valuation, Medtronic's stock can give investors a good margin of safety, making it a good investment to hang on to, even if things don't go according to plan for the business and it stumbles in the near term.
Investors may not be overly bullish on Medtronic right now, but should a recession be coming, they could turn to safer and cheaper investments. That could help make the healthcare stock a much more appealing option.
Should you buy Medtronic's stock?
It has been a rough few years for Medtronic due to rising interest rates and supply chain issues around the world. But better days may be ahead for the healthcare stock, and investors who are patient with it could stand to profit significantly in the long run. The stock is up 9% this year, but with some potentially underrated growth prospects and a light valuation, Medtronic may have room to rise much higher in the future.
Should you invest $1,000 in Medtronic right now?
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David Jagielski has no position in any of the stocks mentioned. 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.
