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3 health care stocks that you should know

Since April 2012, the S&P ASX200 Health Care Index (ASX: XHJ) has risen 55%, illustrating an increased need in medical and health care services. Usually this is a defensive industry that investors flock to when financial markets are having problems because their business generally is not affected affected like other cyclical businesses.

During times of economic recovery they can expand as consumers have more discretionary spending and companies have to handle increased service demand. Here are 3 well-established health care products providers that can give your portfolio a good injection of stable growth.

Resmed (ASX: RMD) develops and manufactures respiratory disorders related medical products, and distributes them to over 70 countries. This $8.3 billion company has quadrupled its revenue over the past 10 years, and over the past 5 years has had an annual average earnings per share (EPS) growth of 24.7%.

In 2013, it achieved its highest earnings ever, $331.1 million, for a gain of 32% over last year. In the past year its share price has risen from $4 to about $5.80, and its price-earnings (PE) ratio stands at 25, which is in line with its EPS growth over the last two years.

Manufacturer of implantable hearing aid devices Cochlear (ASX: COH) is famous worldwide for its technological development of converting sound into an electrical signal that the brain can interpret as sound. It is the world’s leader in such technology, and is a $3.3 billion company by market capitalisation.

It has had setbacks, such as the 2011 recall of one of its products due to health concerns, and competitors are beginning to develop their own products that are on par with the company’s, so learning more about the industry would be wise to understand its competitive advantage. It does have a return on equity (ROE) of 37.4% and net profit margin is 18.5%.

Ansell (ASX: ANN) develops and manufactures health and safety products like surgical, industrial and household gloves, protective clothing and condoms.  These kinds of products are used every day on a large scale, but most of them are only used once, and then disposed of, so its customers demand a steady supply of them.

A $2.47 billion company, it had $1.34 billion revenue in 2013, and achieved its highest ever net profit after tax of $140 million. EPS have grown an average 7.5% annual over the last 5 years. ROE is 16.7%, and its share price has risen from about $16 to $19 in the past 12 months. With a PE of 18, it is higher than its 5-year average. The company’s 2014 guidance is for EPS to increase by 5%-11%.

The Foolish Takeaway

Health care needs will never go away, and most likely will flourish more with a growing Australian population, which itself will have more demand since the Baby Boomer generation are now beginning to enter retirement.

These companies are steady growers that supply those needs, and with technological advancement, their products draw premiums that translate into higher profits for their shareholders.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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