3 Reasons Medtronic Stock Can Continue to Rise

Medtronic (MDT -0.70%) it hasn’t been a terribly hot stock to own in recent years. Since 2021, its shares are down more than 20%. But recently, investors seem to have given 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 may be a safer option for investors to consider now. The stock has gained momentum of late and there could be a lot more upside and room for it to go even higher for the following three reasons.

Cutting interest rates could help fuel demand

Medtronic may be an underappreciated beneficiary of falling interest rates. That’s because as rates drop, hospitals and companies that buy Medtronic devices become less expensive to finance. This can help increase its growth rate.

While Medtronic’s revenue has grown in recent years, it may not grow fast enough to excite many investors. In its most recent quarter (which ended July 26), revenue rose just under 3%. If Medtronic can see that growth rate accelerate, which could happen as interest rates fall, that may be what the stock needs to start rallying and attract more growth investors.

MDT Revenue (Quarterly Yearly Growth) data by YCharts.

Launching more products will open up even more possibilities

While it may not look like a growing business based on single-digit growth, Medtronic has expanded its operations. In the past year alone, it has secured approximately 130 product approvals in many key markets. From catheters to neurostimulators to continuous glucose monitoring devices, the company has a wide range of products in its portfolio and regularly launches new devices.

While not all of the products will be strong revenue generators, collectively they can enhance the company’s overall long-term potential as they offer Medtronic many different ways to grow its business for years to come. The company has a wide presence in more than 150 countries and its products help treat more than 70 different conditions. By bringing better and more efficient products to market, it can ensure that the business continues to grow, possibly at a higher rate than the recent average.

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 might tip the balance for you is Medtronic’s modest valuation. The stock currently trades at 16 times next year’s earnings, based on analysts’ forecasts. That’s a pretty low price when you consider that the average healthcare stock in the Healthcare Select Sector SPDR Fund averages a forward price-earnings multiple of nearly 22.

Medtronic is arguably better than the average healthcare stock, and therefore should warrant a much larger premium. However, it is trading at a discount compared to the average stock. At an attractive valuation, Medtronic stock can offer investors a nice margin of safety, making it a good investment to hang on to even if things don’t go according to plan and the business stumbles in the short term.

Investors may not be too bullish on Medtronic right now, but should a recession come, they could turn to safer, cheaper investments. That could make the healthcare stock a much more attractive option.

Should you buy Medtronic stock?

It’s been a tough 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 see a significant return over the long term. Shares are up 9% this year, but with some potentially understated growth prospects and a soft valuation, Medtronic could have room to grow much more going forward.