Stocks tend to perform well in January, but that's not a good reason to invest this month. Strong returns aren't made in a single 30-day period. Instead, as long-term investors know, the key is to hold onto excellent companies that can perform well over the long run. There are many candidates to that effect on the market. Let's consider two in the healthcare sector: DexCom (DXCM -0.84%) and Exact Sciences (EXAS -7.37%). Let's discuss why these two companies are worth investing in right now.
1. DexCom
DexCom is a leader in the continuous glucose monitoring (CGM) market, or devices that help diabetes patients track their blood glucose levels. The company encountered some issues in 2024, including slower-than-expected revenue growth due to patient rebate eligibility issues. DexCom's shares fell off a cliff after it released its second-quarter earnings report. Though they have rebounded somewhat, they are still substantially down from their pre-August levels.
Considering DexCom's long-term prospects, it is a good opportunity to invest in the stock. The adoption of CGM devices has provided a tailwind for the company in the past, leading to strong revenue and earnings growth. These gadgets have significant advantages over blood glucose meters. For instance, CGMs can automatically measure patients' sugar levels up to every five minutes, allowing them to make better health decisions daily.
BGMs are manually operated and only capture patients' glucose levels at one point in time. No wonder, then, that CGMs are associated with better health outcomes. Further, DexCom still has plenty of whitespace in the industry. Even in the U.S., where CGM enjoys greater penetration than in most other countries, the number of patients who use CGMs continues to lag the total population that is covered by insurance. DexCom estimates a total addressable market of 25 million people in the U.S., a mere fraction of the worldwide diabetes population.
It's also worth pointing out that DexCom has expanded beyond treating those with diabetes. It launched Stelo in 2024, which is an over-the-counter CGM option that can be used by people with prediabetes. Lastly, DexCom's devices are compatible with third-party insulin pens, pumps, etc. That grants the company a network effect. That, combined with the vast runway for growth ahead, should allow DexCom to bounce back from its recent dip and deliver excellent returns to investors who stay the course.
That's why the stock is a buy this month.
2. Exact Sciences
Exact Sciences develops innovative cancer diagnostic tests. The company's most popular brand by far is Cologuard, an at-home, non-invasive test for colorectal cancer, the second leading cause of cancer death in the world. Colorectal is highly treatable when caught early, though, which is a sign that not enough eligible patients are getting tested. Health experts recommend regular screenings for people aged 45 and over. That's Exact Sciences' target market.
Cologuard, first approved in 2014, has been used to screen millions of patients, leading to strong revenue growth for the company. However, Exact Sciences remains unprofitable. In the third quarter, the company's revenue increased by 13% year over year to $709 million. The company reported a net loss per share of $0.21 after breaking even in the third quarter of 2023. The good news is that last year, the U.S. Food and Drug Administration (FDA) approved a new and improved version of Cologuard.
Not only does it perform better than the previous iteration -- including more true positives and fewer false negatives -- but it is also 5% cheaper to manufacture. So, thanks to this new device, Exact Sciences will be able to get many physicians who have so far been hesitant to prescribe Cologuard to their patients on board. It will also help decrease the company's costs and expenses and boost the bottom line.
There remain 60 million eligible unscreened patients between 45 and 85 in the U.S. That's not to mention the various other devices Exact Sciences is developing, including a potential multicancer test. Exact Sciences could generate stronger revenue growth and become profitable in the next five years, leading to strong stock market performances for the company. So, Exact Sciences is a good pick for healthcare investors.
