## Why Medical Equipment Stocks Keep Defying the Odds: A Contrarian Play for 2026

Here's a paradox worth unpacking: Healthcare stocks rose 13% in 2025 despite facing the worst policy headwinds in decades. Federal spending cuts exceeding $1 trillion, potential 250% tariffs on imported drugs and devices—these should have crushed the sector. Yet it still outpaced most expectations.

**The reason?** Demographics don't lie. With 61 million Americans aged 65+, and the global 60+ population set to hit 2.1 billion by 2050, demand for medical equipment and treatment is simply inelastic. No government can legislate away the need for medical devices.

### The Real Story: Why One Medical Equipment Fund Stood Out

While the broader healthcare sector captured headlines with its double-digit gains, one fund quietly lagged: the **Fidelity Select Medical Technology and Devices Portfolio (NASDAQ: FSMEX)**. Down 2.5% year-to-date, it looks like a loser on the surface. But dig deeper, and you find a portfolio of 64 medical equipment manufacturers sitting on unrealized potential.

Consider the fund's top holdings:

**Boston Scientific** represents 12% of the portfolio. This medical equipment powerhouse serves 44 million patients globally through 13,000+ products. In 2024, net sales jumped 18% year-over-year. Last quarter alone, it posted 20% growth in net sales across all regions—U.S., Europe, Asia Pacific, Latin America, and Middle East Africa.

**Abbott Laboratories** and **Stryker** anchor the income side. Abbott holds the rare Dividend King status with 51 consecutive years of dividend increases. Stryker just announced its 33rd dividend hike. Together, they represent roughly 10% of holdings.

### Income That Actually Competes

Here's where medical equipment funds get interesting: The Fidelity portfolio generated $5.96 per share in distributions during 2024—a 9% yield for investors holding at year-start. In 2025, that was $4.67 per share, translating to 7.5% yield.

Compare that to the S&P 500's anemic 1.14% average yield. Even with volatility in payout amounts, the income stream substantially outpaces broader market alternatives.

### Long-Term Track Record Speaks Volumes

Since launching in 1998, this medical equipment-focused fund has delivered 13% average annual gains versus 8.9% for the S&P 500. That's not flashy, but it's compounding magic over decades.

### What Changes in 2026?

The tailwinds are starting to align. Midterm elections typically motivate Washington to extend healthcare subsidies rather than allow premiums to spike for voters. The Trump administration has already shown willingness to grant tariff exemptions (Pfizer got relief). Even a Supreme Court ruling against tariff authority remains possible.

Translation: The narrative shifts from "healthcare under siege" to "healthcare stabilizing." That's when beaten-down medical equipment stocks typically accelerate.

**The Setup:** A sector-wide bounce after its worst year in recent memory, combined with a fund offering 7.5%+ distribution yields and a track record of 13% long-term gains, presents a genuine contrarian opportunity. FSMEX may have lagged in 2025, but its portfolio of essential medical equipment companies isn't going anywhere.