Every December I find myself doing the same little ritual: I pull up the year-to-date sector performance table, sort it from worst to best, and start hunting for the names everyone has forgotten about.
This year the laggards list had a familiar face near the bottom – health care. Funny how fast the market memory can be. Just a couple of years ago you couldn’t turn on the TV without hearing about the next miracle drug or vaccine play. Now? Crickets. And yet, something interesting has started happening over the last couple of months.
The forgotten corner of health care – medical devices – is quietly waking up.
Why Medical Devices Deserve a Second Look Right Now
Let me be clear up front: I’m not here to tell you the entire sector is about to double overnight. That’s not how mature, cash-flow-heavy industries work. But when a group has lagged the S&P 500 by almost 25 percentage points over three years and suddenly starts showing relative strength, my antennae go up.
The iShares U.S. Medical Devices ETF (IHI) is still up only about 8.7% year-to-date while the broader market is flirting with 25%. That gap feels extreme. History shows that when a defensive, high-quality sector gets this stretched to the downside, the eventual mean-reversion move can be surprisingly sharp.
We saw it in 2016. We saw it again in late 2018 into 2019. And the early price action this winter looks eerily similar.
The One Name That Keeps Jumping Off the Chart
While many traders have been focusing on the usual suspects – the big device giants that everyone already owns – there’s a lesser-known name that has been quietly outperforming the entire group.
Steris plc (STE). Global leader in sterilization equipment and infection-prevention services. Think of them as the company that makes sure surgical instruments are actually clean before they go back into the next patient.
Not the sexiest story on paper, I’ll grant you that. But boring can be beautiful when the chart is doing everything right.
“Sometimes the best opportunities hide in the industries nobody wants to talk about at parties.”
The Long-Term Picture: A Textbook Base Breakdown and Recovery
Pull up a weekly chart of STE going back five years and the story practically tells itself.
Shares exploded higher during the pandemic (for obvious reasons – hospitals were sterilizing everything that wasn’t nailed down). Then came the inevitable post-stimulus hangover. The stock round-tripped almost the entire gain, falling all the way back to levels last seen in 2019.
But here’s where it gets interesting: instead of rolling over and dying like many other pandemic winners, STE spent the next three years building a massive multi-year base. Slow, methodical higher lows. Decreasing volatility. Classic accumulation behavior.
And then in November something clicked. The stock sliced cleanly through the $250 level that had rejected price four separate times since 2021. Former resistance became support almost immediately – exactly the kind of decisive follow-through technicians dream about.
Momentum Confirms the Move
I always want to see the RSI confirm a breakout, and STE is delivering in spades.
The weekly RSI has been trending higher for 18 months straight and currently sits around 65 – firmly in bullish territory but nowhere near the overbought zone. That tells me there’s plenty of fuel left in the tank.
- Monthly RSI just crossed above 60 for the first time since 2021
- Price is now above the 50-month moving average – another major bullish signal
- Volume on the breakout week was 40% above the 50-day average
In my experience, when you get this kind of alignment across multiple timeframes, the path of least resistance tends to stay higher for longer than most people expect.
Where the Risk/Reward Looks Compelling
Here’s what I love most about the current setup: the risk is unusually well-defined.
The $250 level has now flipped from resistance to support. A weekly close back below $247-248 would invalidate the breakout thesis and be my cue to exit or tighten stops aggressively. That’s less than 6% downside from current levels.
On the upside? The measured move from the multi-year base points toward the old pandemic highs around $300. That’s roughly 22% higher over the next 6-9 months – a better than 3.5-to-1 reward-to-risk ratio if you use the breakout level as your stop.
Even if we only get a more conservative retest of the 2023 highs near $280, you’re still looking at low-teens upside with single-digit downside risk. That’s the kind of asymmetry I’m always hunting for.
The Fundamental Backdrop Isn’t Hurting Either
I’m primarily a chart guy, but I never ignore the underlying business when the technicals line up.
Steris operates in a corner of healthcare that’s about as defensive as it gets. Hospitals can delay buying a new MRI machine. They cannot delay sterilizing surgical instruments. This creates extremely sticky recurring revenue – roughly 65% of total sales come from consumables and service contracts.
The company has raised its dividend for 19 consecutive years and currently yields about 0.9%. Not going to make you rich on income alone, but it’s a nice bonus for a stock that’s growing earnings at a mid-teens clip.
Management guided for 12-14% EPS growth this fiscal year. If they merely hit the midpoint and we apply a conservative 24x multiple (slightly below the five-year average), that alone gets you to $295-300 even without multiple expansion.
Short-Term Hurdles to Watch
To be fair, nothing moves in a straight line.
There’s overhead supply around $267-270 from the summer consolidation that could slow the advance in the coming weeks. I actually expect a brief pause or shallow pullback to digest the breakout – healthy behavior after such a sharp move.
The beauty is that any pullback toward $250-255 should find plenty of buyers now. That former resistance zone tends to act like a magnet for dip-buyers on the first retest.
How This Fits Into the Broader Healthcare Rotation
Remember, Steris isn’t moving in a vacuum.
Names like Idexx Labs (IDXX) – another high-quality medical device-adjacent name – just hit all-time highs. The SPDR Health Care ETF (XLV) has quietly broken above its 200-day moving average. Even the beaten-down biotech ETF (IBB) is making new 52-week highs.
When leadership starts broadening out like this within a laggard sector, it often signals the early stages of a much more meaningful rotation.
And Steris, with its 26% year-to-date gain versus the device group’s 8.7%, is clearly one of the generals leading the charge.
Markets tend to reward patience in high-quality names that nobody is excited about… until suddenly everyone is.
I’ve been doing this long enough to know that the best trades often feel a little boring at first. Steris fits that description perfectly right now – strong chart, defensive business, reasonable valuation, and almost no one talking about it.
That combination rarely stays undiscovered for long.
Whether you’re looking for a core healthcare holding with growth potential or simply a high-conviction idea in an uncertain market, STE deserves a spot on your watchlist. The risk/reward setup is among the cleanest I’ve seen all year.
Sometimes the most obvious opportunities are the ones hiding in plain sight.
