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Two Stocks Benefiting From Loud Snorers

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These companies will also benefit from the obesity trend, which is not unrelated.

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Based on doctors' estimates, the market for individuals with sleep apnea may explode in the coming years. In the US, doctors estimate that between 12 million and 40 million individuals suffer from sleep apnea. The number varies widely because doctors believe up to 85% of people with sleep apnea in the US may be unaware they have the disorder. Over 100 million people worldwide suffer from sleep apnea, and doctors believe that less than 80% of individuals with the disorder around the world know they suffer from the disease.

Treatment of sleep apnea often requires wearing a mask connected to an air flow generator, which pushes oxygen through a person's nose into his or her lungs as he or she sleeps. WebMD describes the continuous positive airway pressure, or CPAP, treatment as the "preferred initial treatment" for OSA. The sleep apnea diagnostic and therapeutic device market is expected to grow from $7.96 billion in 2011 to $19.72 billion in the year 2017, according to MarketsandMarkets. (You can view air flow generators here and masks here.)

Source: ResMed
Here's a ResMed Quattro FX for Her
An Investors.com article quotes analyst Michael Matson of Mizuho Securities as saying, "The (sleep-disorder) market is growing a lot faster than other things in the medical-devices sector." Analysts see the sleep-disorder market growing 6% to 8% per year.

ResMed (NYSE:RMD) and Philips Respironics (a division of Philips Electronics (NYSE:PHG)) are positioned to benefit from the sleep apnea trend. Both companies supply the bulk of the masks and air generators to individuals worldwide. According to Investors.com, analysts estimate that ResMed and Philips Respironics control 70% to 80% of the worldwide sleep-disordered device market. ResMed CEO Peter Farrell stated ResMed controls 42% of the market while Philips controls 38% of the market.

A family member of mine suffers from sleep apnea, and when I checked the brand of the air flow generator, he had a ResMed device in his bedroom.

Of the two, ResMed will be more sensitive to the growth of sleep apnea diagnosis. The company describes itself as focused solely on producing and selling medical products for the treatment and management of respiratory disorders "with a focus on sleep-disordered breathing."

JPMorgan analysts wrote in a letter to clients, "We think ResMed is unquestionably the strongest manufacturer of masks." The San Diego-based company sells approximately 200,000 devices and 700,000 masks every month, and analysts expect ResMed to grow earnings 13% in 2013. For its fiscal first quarter of 2013, ResMed's revenue grew 8% year-over-year to $339.7 million.

Philips Electronics' third-quarter net income increased from 76 million euros, or 0.08 euros per share, in the prior-year quarter to 170 million euros, or 0.18 euros per share. (View its third-quarter financial results here.)

Meanwhile, US mask sales grew 13% in the third quarter of this year and US flow generator sales grew 17% in the same quarter.

CareFusion Corporation (NYSE:CFN) and Natus Medical (NASDAQ:BABY) are other players in the sleep apnea diagnostic and therapeutic device market.

The coinciding trend of growing waistlines will also benefit these device producers. As mentioned above, OSA is often related to body size -- in fact, more than half of those who suffer from OSA are also overweight. Obese and overweight individuals have larger amounts of fatty tissue around the neck, which puts greater pressure on the the throat and raises the chances of it collapsing while sleeping.

A report released earlier in the year categorized 34% of people in the US as obese. The Organization for Economic Co-operation and Development released a different report earlier in the year projecting that by 2020, 75% of the US population will be obese.

Unless Americans start slimming down, more of us will be wearing nasal masks to bed.

Twitter: @ChrisWitrak
No positions in stocks mentioned.
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