Should you buy Cochlear?

Short-term focus has neglected long-term potential.

a woman

Cochlear (ASX: COH) has been largely out of favour with analysts and investors in recent years, due to lower-than-hoped-for periodic results as well as the increasing presence of competitors in the industry.

The company manufactures and distributes cochlear implantable devices for the hearing impaired with the aim of improving its customers’ standard of living. For over 30 years, the company has developed the highest quality products, making it a favourite amongst customers.

However, according to Bloomberg, the company currently has just three ‘buy’ calls, compared to three ‘holds’ and nine ‘sells’. Although it is recognised that Cochlear is a quality company, concerns have arisen regarding the entrance of other competitors such as Sonova, which recently won a Chinese contract for 1,500 hearing aid units. In fact, some analysts are anticipating that Cochlear’s unit sales could decrease by between 6% and 11% for 2013-14.

So because Cochlear is out of favour with analysts and investors, it’s a stock to avoid, right?

Wrong. In fact, it could otherwise be argued that right now is the perfect time to buy.

What’s so attractive about Cochlear?

Since January, the company’s share price has plummeted 28.7% from $82.87 to just $59.06. The current price is reflective of what many believe to be a poor outlook, given increased competitive pressures and short-term threats to the level of sales.

That’s hardly a fair valuation on a company that increased the number of customers to receive its implants last year by 16% to 26,674. In addition to this, Cochlear’s second half sales were stalled due to the pending release of its Nucleus 6 product – which the company believes customers waited for instead of purchasing older models.

Meanwhile, an increased level of competition is always daunting for any investment, particularly when the new competition is able to produce similar products at a cheaper price. However, in such a profitable industry, it was always to be expected that new competitors would enter the market. It is the quality of Cochlear’s products that gives me faith regarding its long-term prospects – after all, when it comes to health, quality is king.

Joel Gray, portfolio manager for Hyperion Asset Management (which, according to The Australian Financial Review, owns 6% of Cochlear), believes that “there are a lot of potential recipients that aren’t currently receiving implants.”

Furthermore, the company’s level of spending on research and development should hold it in good stead against competitors, allowing it to provide a superior product and therefore maintain a strong share of the market for a long time to come.

Foolish takeaway

Whilst Cochlear remains a very attractive prospect, there are other strong healthcare companies to consider. For instance, the future is bright for ResMed (ASX: RMD), which develops products for the treatment of respiratory disorders, as well as Acrux (ASX: ACR), which develops a range of patient-preferred pharmaceutical products.

Although there are gains to be made in this industry, there are plenty of other attractive ideas. For instance, are you interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Ryan Newman owns shares in Cochlear.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

The share price of ASX infant products retailer Baby Bunting Group Ltd (ASX:BBN) has been a solid performer so far …

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

A new landmark report by the Intergovernmental Panel on Climate Change (IPCC) was released earlier this week. It provided a …

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest …

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos Limited (ASX: AMS) share price has been on a tear this past week, rising 15% on the back …

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

Online furniture retailer Temple & Webster Group Ltd (ASX: TPW) had a breakout year in 2020, moving from relative obscurity …

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

Shares in ASX healthcare company Polynovo Limited (ASX: PNV) almost doubled in price last year. And, despite a shaky start …

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

Investing in other geographic markets has become a popular way to diversify a portfolio. The risks associated with being exposed …

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

Despite the News Corporation (ASX: NWS) share price getting a 31% bump between November last year and today, News Corp …

Read more »