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3 reasons why I think the Healthscope Ltd share price is a buy

The Healthscope Ltd (ASX: HSO) share price has risen by 7.4% since the start of June and I think it could keep going higher.

In my opinion healthcare is one of the best industries to be invested in. There are a variety of different types of healthcare businesses to choose from.

Some healthcare businesses focus on a particular treatment such as Cochlear Limited (ASX: COH) and Sirtex Medical Limited (ASX: SRX). Some offer pathology like Primary Health Care Limited (ASX: PRY) and Sonic Healthcare Limited (ASX: SHL). Some provide insurance like NIB Holdings Limited (ASX: NHF) and Medibank Private Ltd (ASX: MPL).

I think the best healthcare businesses of all are private hospital businesses such as Healthscope and Ramsay Health Care Limited (ASX: RHC).

Here are three reasons why I think Healthscope is a good buy today:

Beaten up share price

Healthscope is the second biggest private hospital operator in Australia. However, its market capitalisation is a bit smaller than a year ago when its share price was $2.78. This represents a 22% drop to the current share price.

The reason why the share price was hit so hard was that management gave the market cautious guidance saying that patient numbers weren’t growing, meaning that profit was unlikely to grow. However, over the long-term I think the business will grow due to my next two reasons.

Ageing population tailwinds

The Australian population is steadily ageing because the baby boomer cohort is steadily getting closer to retirement age.

The number of people over 65 and 85 is expected to dramatically increase over the next two decades, which could be a big boost to healthcare businesses. The older we become the more likely we will need to visit the hospital.

Private hospitals aim to offer a higher level of service and care, meaning that they could attract wealthier patients willing to pay for the service.

Construction projects

Healthscope is building a number of new facilities in anticipation of the expected demand in the future. Its biggest project is the Northern Beaches Hospital in Sydney which will add 450 beds. Healthscope’s current list of projects will add 792 beds to its total and 49 operating theatres. These additions should be a sizeable boost to earnings.

Foolish takeaway

Healthscope is currently trading at 20x FY17’s estimated earnings with an unfranked dividend yield of 3.41%. Although this isn’t a very cheap price, I think it could be very good value for an investor who buys and holds for the next decade.

However, the dividend yield is pretty small for Healthscope, so perhaps you'd prefer these dividend shares that have big, growing dividends.

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Motley Fool contributor Tristan Harrison owns shares of HEALTHSCPE DEF SET. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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