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Cramer: Money managers hiding cash in these medical stocks

While biotech and pharmaceutical stocks have been struggling for the year, Jim Cramer discovered a less-sexy part of the health care group that is on fire. Portfolio managers have flocked to medical device companies in an effort to mirror the sector breakdown of the S&P 500.

"Money managers are pouring cash into the medical device segment precisely because pharma and biotech have, at least temporarily, gone out of style on the Wall Street fashion show," the "Mad Money" host said.

The group came under fire since last September when Hillary Clinton focused her efforts on price gouging, around the same time that Turing Pharmaceuticals jacked up prices on its generic drugs, and turmoil at Valeant was in the public eye.

Often money managers try to mirror the sector composition of the S&P 500. Currently, the S&P is comprised of 15 percent health care, which means the money managers are desperate to have health-care exposure.

"They need to invest in health care, but they want to put that money in safer health care stocks that aren't in the crosshairs of the federal government. That is one big reason they have been buying the medical device stocks hand over fist," Cramer said.

Medical stocks
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"I bet this group can keep climbing based on the strength of the fundamentals and all of the consolidation we are seeing." -Jim Cramer

Another reason Cramer says the medical device companies have finally garnered attention is the fundamentals have become more bullish. Previously, innovation had stalled the group as medical device makers cut down on research and development.

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That prompted venture-capital investing to dry up, and IPO activity to slow. Additionally, the Affordable Care Act introduced a 2.3 percent excise tax on the medical-device industry back in 2013.

Last December, the medical-device tax was suspended for two years. Additionally, med-tech companies began to report impressive results. Cramer attributed that to both changing demographics of an aging baby boomer generation and increased spending on innovation in the group.

Cramer pointed to C.R. Bard, Boston Scientific, Edwards Lifesciences, Zimmer Biomet Holdings and Stryker as the winners of the group.

"I bet this group can keep climbing based on the strength of the fundamentals and all of the consolidation we are seeing … So, when it comes to the medical devices space, I say take your pick," Cramer said.

The only stock that he considered to be expensive was Edwards Lifesciences, which he thinks still deserves the premium.

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