UBS says this sector remains a high-quality, defensive investment theme

Investing.com -- UBS continues to view the medical devices sector as a high-quality, defensive investment theme, supported by long-term demographic shifts and rising global demand.

In its Tuesday report, the bank reiterated that the sector is benefiting from structural trends tied to longevity, increasing global life expectancy, and greater adoption in emerging markets.

Medical (TASE:BLWV) devices are seen as essential to extending lifespan and improving quality of life. “We view medical devices as a key component of our broader Longevity theme,” strategists led by Eric Potoker said.

UBS estimates the target market size at $159 billion, with a mid-single-digit annual growth rate, underpinned by aging populations and innovation across key therapeutic areas.

Among the most important segments, diabetes technologies are expanding rapidly, with automated insulin delivery pumps and continuous glucose monitors driving annual growth of more than 15%.

Other areas of strength include orthopedic implants, cardiovascular devices, and consumer health products such as hearing aids and dental implants. UBS highlights that “many devices have become standards of care,” and says ongoing product innovation is key to maintaining pricing power and displacing older technologies with higher-margin offerings.

The demand for surgical procedures rebounded sharply after the pandemic, and while pent-up demand is starting to fade, growth remains above pre-COVID levels. Demographics are playing a central role, especially as the global over-65 population is expected to rise nearly 20% by 2030, according to UN estimates.

The sector’s defensive characteristics are also evident in the current macro backdrop. While medical devices are somewhat sensitive to employment-linked insurance coverage in the U.S., UBS notes that the Affordable Care Act has expanded access and may reduce recession-related impacts.

In Europe, stable demand in chronic care and diagnostics is helping sustain momentum, while hearing aid sales have started to reaccelerate. In contrast, sales in China remain subdued, weighed down by macroeconomic softness and pricing pressure linked to the value-based procurement system.

Looking ahead, UBS expects population aging, lifestyle-related diseases, and rising GDP in emerging markets to drive structural demand. The bank sees limited downside from newer obesity drugs, stating that even if some procedures are delayed, expanded lifespans will likely maintain or increase overall device usage.

“We continue to see strong underlying growth that we believe will sustain medical device valuations at or near current levels,” the strategists wrote.