A top medical technology stock is trading at a big discount. Here’s why I’m buying
Stryker is one of our firm’s top picks, and it’s a stock I own personally and for my family as well. I see an opportunity to buy a global leader in medical technology at a substantial discount to its historical valuation. Founded in 1941, the Portage, Michigan-based company makes medical devices and equipment used in surgeries, from orthopedic implants to surgical instruments and robotic systems. It generates more than $25 billion in annual revenue and serves more than 150 million patients. Key points Stryker holds the top positions in virtually all of its markets. Company has consistently grown faster than the broader medical technology industry. Stryker’s position in robotic-assisted surgery offers another avenue for growth. Stryker has a strong history of growth, but its stock has come under pressure following a cyberattack earlier this year and concerns that government healthcare funding cuts could weigh on demand for medical procedures. I see these challenges as temporary and am optimistic about the company’s leadership transition. On Oct. 6, Stryker announced that Spencer Stiles, a 27-year company veteran, will succeed longtime CEO Kevin Lobo next year, with Lobo becoming executive chairman. Stiles is well positioned to build on Stryker’s track record of success. Why I’m buying A leader with a competitive advantage Stryker holds leading positions in virtually all of its markets. One reason is how the company operates. Although it reports two major business segments, Stryker is organized into 22 specialized businesses, each accountable for its own financial performance. This allows individual businesses to focus on their markets while benefiting from the resources of a global medical technology leader. Stryker has also completed about 60 acquisitions over the past decade. Its established relationships with hospitals and broad product portfolio give it an advantage that’s difficult for rivals to replicate. A strong record of growth with more to come Over the past five years, Stryker has grown organic revenue by about 10% annually, roughly 4 percentage points faster than the markets it serves. Adjusted earnings per share have increased about 12% to 13% annually. Profitability has improved, too. Adjusted operating margins reached about 26% last year, and management expects further improvement. I don’t think that growth story is over. Stryker is targeting sales growth at the high end of the medical technology industry through 2028, supported by new products and expansion into faster-growing businesses. SYK YTD mountain Stryker, YTD Robotics could fuel the next phase of growth I also like Stryker’s position in robotic-assisted surgery, which I think will become increasingly important as hospitals look for ways to improve surgical precision. The company’s Mako robotic system helps surgeons plan and perform joint replacement procedures with greater precision. Since Stryker already has an established presence in this market, I see plenty of opportunity as more hospitals adopt the technology. There are broader trends working in its favor, too. An aging population should support demand for joint replacements, while more surgeries are moving from hospitals to outpatient surgery centers. Stryker’s broad product portfolio puts it in a strong position to benefit from both trends. Why now? At around $304 a share, Stryker is trading roughly 23% below its 52-week high of $392.55. The stock trades at a discount to its historical valuation of 24 to 25 times forward earnings, which I see as an attractive opportunity. Several factors have weighed on shares, including the cyberattack earlier this year and supply disruption at its Inari business that hurt second-quarter 2026 growth. I believe these setbacks are temporary. As operations recover, growth could accelerate and help Stryker regain some of its historical valuation premium. Bottom line The biggest risks are prolonged operational disruptions and changes to government healthcare funding that could hurt procedure volumes and profitability. Still, I see an opportunity for long-term investors to benefit from Stryker’s growth potential, particularly in robotic-assisted surgery, while shares trade below their historical valuation. Sarat Sethi is a Managing Partner and Portfolio Manager at Douglas C. Lane & Associates. Disclosures: Sethi owns personally and in Douglas C. Lane & Associates. All opinions expressed by the [CNBC Pro contributors] are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. This content is provided as part of our editorial output for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. 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