ResMed Inc (ASX: RMD) shares have extended gains this month, closing at fresh 52-week highs of $39.07 apiece on Monday.
They have since retreated to $37.72 at the time of writing after the company posted its third-quarter results in the US overnight.
ResMed has since caught the eye of the Selector High Conviction Equity Fund, which views the sleep technology leader as "well positioned" for growth in FY25. Here's why Selector sees ResMed shares as a standout for the year ahead.
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Why this fundie is backing ResMed shares
Selector's High Conviction Equity Fund put up 11% returns for the three months ended September 30, helped in part by ResMed shares.
It buys individual stocks in a concentrated fashion, meaning it doesn't seek to replicate indexes or invest passively.
As of its September filings, it had a 24% weighting to the health care and equipment services industry, followed by a 19.8% allocation to software.
The fund cites ResMed's FY24 numbers and management's bullish view on gross margins as key reasons to own the stock.
For FY24, ResMed reported an 11% revenue boost, with operating profits up 21% to US$1.5 billion.
But the central driver of the investment thesis is ResMed's market for sleep apnoea devices, particularly continuous positive airway pressure (CPAP) machines.
Put bluntly, the market size is huge, with estimates that over one billion people worldwide suffer from sleep apnoea.
And recent trends in the market for "sleep tracking wearables", designed by companies to "detect moderate to severe cases of sleep apnoea", are major tailwinds for ResMed shares, Selector says.
Samsung was the first company to announce a detection feature on its smartwatch, enabling users over the age of 22 to detect signs of moderate to severe obstructive sleep apnea. The company received U.S. regulatory approval in February and expects the feature to launch this quarter in the U.S.
Apple's announcement followed in September, unveiling its sleep apnea features in its recent showcase of its new series 10 release. U.S. regulatory approval was granted a week later for individuals age 18 and older who have not previously been diagnosed with sleep apnea.
ResMed remains well positioned to benefit, holding the two leading CPAP devices in the market and the only player with meaningful scale, with 26 million connected devices globally.
But the fund manager sees growth drivers outside this domain as well. The emergence of weight loss drugs, especially GLP-1s, has also increased public awareness of sleep-related health issues.
This has reportedly led more patients to seek CPAP therapy, providing a tailwind to ResMed shares.
Brokers are bullish too
In addition to Selector's endorsement, analysts at Macquarie retained their buy rating on ResMed shares this week.
The broker lifted its price target on the stock to $41.10 following the company's quarterly report.
Macquarie analysts praised ResMed's operating leverage and cash flow, citing stronger-than-expected performance in non-U.S. markets.
If the broker is correct, this implies a potential return of 9% before any dividends are considered.
Foolish takeout
As demand for sleep and respiratory solutions grows, ResMed shares are well positioned, according to Selector.
It says multiple drivers could see the company grow significantly over the coming years, and Macquarie analysts share this view.
Time will tell which side of the fence is correct. In the last 12 months, ResMed has increased by 73%.
