History and Warren Buffett have shown that the most reliable returns for share market investors come from businesses with wide moats that help them to steadily grow their revenues and profits over long periods of time.
The investing concept of a moat or competitive advantage for a company means it is hard for rivals to compete with it or take market share due to any number of different advantages a company may possess over its rivals.
For example leading companies in the healthcare space can enjoy competitive advantages as their products are patented or complex and nearly impossible to replicate unless another company has vast amounts of capital to commit to developing superior products.
If a company possesses market-leading medical or healthcare products it can also command premium prices and consistently lift prices as both the public and private healthcare sectors demand the best-in-class products. Moreover, the public and private healthcare sectors have eye-wateringly large budgets to procure medical products which means leading suppliers can be more price makers than price takers.
Thankfully, Australian investors are blessed with several leading price-making companies in the healthcare space that look among the best opportunities for long-term investors focused on capital growth.
Below I name three I have covered before that are on high valuations, but still likely to deliver good returns over the long term.
CSL Limited (ASX: CSL) is a diversified healthcare business that sells blood plasma and vaccination products to the global hospital sector. It is expecting profit growth of 18% to 20% in FY17 and has a superb track record of growing shareholder returns. At $128 the stock is on a high earnings multiple, but remains one of the ASX's best growth businesses.
ResMed Inc. (CHESS) (ASX: RMD) is a sleep apnea treatment specialist that has an impressive record of revenue and profit growth thanks in part to the market-leading nature of its medical device products that enable it to maintain healthy profit margins.
The stock has tripled over the past five years and at $9.14 trades on an earnings multiple in line with historical valuations. Australian investors in ResMed are also beneficiaries of a weaker U.S. dollar as ResMed pays dividends in U.S. dollars prior to them being exchanged at spot rates into Australian dollars.
Ramsay Health Care Limited (ASX: RHC) is the global hospital operator that has returned 250% to investors over the past five years thanks to growing demand for its hospital places. As with CSL and ResMed it's the profit margins that are critically important to the businesses as they are key to delivering consistent earnings growth. Ramsay is expecting core profit and earnings per share growth of 12% to 14% over FY 2017 and looks a reasonable opportunity at $69.13.
