Why Masimo Corp (MASI) Stock is a Compelling Investment Case

Ensemble Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 22.66% for the second quarter, outperforming its benchmark, the S&P 500 Index which returned 20.54% in the same quarter. You should check out Ensemble Fund’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Ensemble Fund highlighted a few stocks and Masimo Corp (NASDAQ:MASI) is one of them. Masimo Corp (NASDAQ:MASI) is a medical device company. Year-to-date, Masimo Corp (NASDAQ:MASI) stock gained 38.0% and on August 19th it had a closing price of $218.16. Here is what Ensemble Fund said:

“Masimo Corp. (5.5% weight in the Fund): When we first invested in medical technology company Masimo in 2019, our focus was on the core Signal Extraction Technology sensor business. We saw – and still see – a tremendous runway for this business line.

From the start, we have had a high opinion of management and the corporate culture. We think Masimo is a technology company tackling healthcare problems, not a healthcare company that uses technology to maintain status quo. In that sense, Masimo is what we call an idiosyncratic business which does not fit neatly into one sector or another.

As generalist investors, we love idiosyncratic businesses as they are often misunderstood by sector specialists. Our opinion of Masimo has grown even stronger in recent months as COVID shook the healthcare system. The company responded aggressively and thoughtfully to the outbreak by caring for its stakeholders and introducing new products that can help medical professionals and patients achieve better outcomes. Masimo’s actions in recent weeks illustrated to us the business’s optionality.

Any time you have a company with valuable intangible assets and a vibrant culture that is focused on serving customers, there’s increased likelihood of what we call unpredictable value creation. As we have seen with SafetyNet in recent months, Masimo can quickly create useful and scalable non-invasive sensor products. We think they have a potential blockbuster in Masimo SafetyNet.

SafetyNet allows medical professionals to remotely monitor patient vital signs from a central nurse’s station. Stable patients can rest, while those with declining vitals get immediate attention. And because Masimo’s sensor false alarm rate is miles ahead of competing products, medical professionals can put faith in its output and not have to worry about running back and forth between false alarms, wasting time, energy, and money.

While SafetyNet is superior to the manual spot-checks typical of general floors, it had a slow adoption rate due to the slow hospital product cycle and the incremental cost of implementing continuous monitoring. Initially, we thought SafetyNet would be limited to hospital use. However, we now believe the addressable market is much larger. To date, sensors have been tied to monitor boxes, but now they can also be tied to smart phones.

After working with two pilot hospitals 24/7 for a few weeks in March, Masimo received FDA approval to launch the Masimo SafetyNet product to combat COVID. Like its opioid product, Masimo’s SafetyNet uses a tether-less device that links to a smartphone and allows nurses to remotely monitor between fifty to seventy patients at a time. Research has shown that a low pulse-ox reading with COVID is a sign of bad things to come. A reading below 93 is cause for concern and if a patient falls below that level, a nurse can tell them to come straight in for evaluation.

Masimo SafetyNet is useful to hospitals because they can send less critical patients either to a field location or back home while beds are reserved for the most in need.

With fewer patients in the building, there is also less risk of spreading the virus and other infections. Patients who do not need immediate care can go home and quarantine themselves knowing that they are still being closely monitored by medical professionals.

As of May 5th – just a few weeks after launch – Masimo had 81 hospitals using SafetyNet and another 785 in the pipeline. Again, Masimo’s reputation for having highly accurate sensors is what makes their at-home monitoring product possible. If hospitals use a system with a high false alarm rate, the whole thing collapses. To put this in some perspective, the leading competing sensor has a false alarm rate of about 1 in 4. Masimo’s latest sensors are about 1 in 67. That is a big difference and a major reason why we think Masimo will be a leader in connected care.

Importantly, as hospitals get used to the SafetyNet formfactor, we believe they will use the Masimo SafetyNet product for other uses beyond COVID. For instance, there are millions of cases in the US each year where people diagnosed with COPD or congestive heart failure go to the emergency room because of concerning symptoms, but upon examination are not sick enough to be admitted. Doctors can give these patients a Masimo SafetyNet to be monitored at home for a few days and give the patient some peace of mind.

Remarkably, Masimo SafetyNet only costs $150 for 8 days of continuous monitoring. Additional sensors can be purchased for $20. Compared with the cost of a night in the hospital, this is a massive cost-savings. All of it ties back to Masimo’s mission statement to improve patient outcomes and reduce the cost of care.”


In Q1 2020, the number of bullish hedge fund positions on Masimo Corp (NASDAQ:MASI) stock increased by about 3% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Masimo’s growth potential. Our calculations showed that Masimo Corp (NASDAQ:MASI) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.