Better Medical Device Stock Right Now: Abbott Laboratories vs. Dexcom

Abbott Laboratories (NYSE: ABT) and Dexcom (NASDAQ: DXCM) are two leading medical device companies that compete against one another in the market for continuous glucose monitoring (CGM) systems. They are the leaders in this niche, which has grown steadily over the past decade. Even so, Abbott Laboratories and Dexcom have underperformed broader equities in the past five years. However, given the massive opportunities available in the CGM market, they could bounce back and deliver much better returns from here on out. Which one is likely to outperform the other? Let's find out.

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Which one is the CGM leader?

Abbott Laboratories stated several years ago that only 1% of the world's diabetics use CGM. That statistic highlights the massive opportunity ahead. Even if adoption has grown since then, the CGM market likely hasn't peaked yet. Abbott's CGM business features its famous FreeStyle Libre franchise, as well as the Libre Rio and the Lingo, which are newer, over-the-counter products Abbott Laboratories launched to expand its market.

Dexcom's CGM portfolio is also diversified. Its products include its G series -- which is currently in its seventh iteration -- the Dexcom ONE, a cheaper version (with fewer features) it launched in some countries to expand access to its technology, and the Stelo, an over-the-counter CGM system.

Abbott Laboratories arguably leads the CGM market ahead of Dexcom. The FreeStyle Libre has an installed base that surpassed five million patients as of three years ago, while Dexcom's signature franchise still hasn't gotten to that milestone. Further, the FreeStyle Libre has become the single best-selling medical device of all time in terms of dollar sales, which is quite an accomplishment.

Abbott's diversification advantage

One of Abbott Laboratories' strengths is its diversified business spanning medical devices, diagnostics, nutrition, and pharmaceuticals. Within its core medtech business, it boasts market-leading devices across several categories, including its MitraClip, which helps treat a heart-related condition. Abbott Laboratories' large portfolio should enable it to generate consistent revenue and earnings. It also has notable growth opportunities in other areas. Abbott Laboratories acquired Exact Sciences for $21 billion in cash to gain access to the cancer diagnostics market.

Exact Sciences' most important product, Cologuard, is a non-invasive option to test for colorectal cancer (CRC) for people at average risk. CRC is the second-leading cause of cancer deaths worldwide, and millions of eligible people have yet to be tested. So, there is still a vast addressable market here. Some of Abbott Laboratories' older franchises should also perform well over the medium term. The company will also launch newer ones, as it has done throughout its history.

The choice depends on your goals

Dexcon trails Abbott Laboratories in its core market -- at least when we compare their respective installed bases -- despite being a pure-play CGM company. Meanwhile, Abbott Laboratories has a vast presence outside this niche. Abbott Laboratories also has the funds to invest in R&D to continue pursuing its CGM agenda, keep up with its smaller rival, Dexcom, and expand into other markets. Given these factors, is there any reason to pick Dexcom over Abbott Laboratories? Yes, there is. Dexcom is a smaller, leaner company that generally posts stronger revenue growth.

ABT Revenue (Annual) data by YCharts

Dexcom's size could grant it more upside as both medical device specialists continue to battle it out in the CGM market. In fact, over the past decade, Dexcom has outperformed Abbott.

DXCM Total Return Level data by YCharts

However, what makes Dexcom attractive compared to Abbott Laboratories also makes it more risky. Its lack of diversification could mean that if things don't go as planned in the CGM market -- perhaps due to the rise of GLP-1 medicines -- its share price will plummet. Abbott Laboratories would suffer too, but it would recover much faster. Lastly, Abbott Laboratories is an excellent dividend stock. It is part of the Dividend Kings group, companies with 50 or more consecutive annual dividend increases. The bottom line: Abbott Laboratories is the better choice for risk-averse income seekers or those concerned that CGM adoption could decline due to weight-loss drugs. Dexcom will appeal more to risk-tolerant, growth-oriented investors.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends DexCom and recommends the following options: long January 2027 $65 calls on DexCom and short January 2027 $75 calls on DexCom. The Motley Fool has a disclosure policy.