Over the years, the health care sector has produced some amazing fortunes for early-stage investors. Its life enhancing products and services gives the sector an amazing tailwind – who doesn’t want to be healthier and live longer? The sector is divided into two industry groups, namely Health Care Equipment & Services, and Pharmaceuticals, Biotechnology & Life Sciences.
While the Pharma, Biotech and LS industry could be described as the “sexier” of the two industries with numerous cutting edge firms backed by science with the potential to send a share price rocketing from a few cents into the big league, it is also very difficult for investors to pick winners. For that reason many investors prefer to focus their attention on the Equipment and Services industry, as determining future earnings and hence value is generally more predictable in this area.
Perhaps the biggest problem – generally speaking – with investing in the health care sector is that everyone realises how great many of these businesses are (or could be), which often makes them too expensive for the conservative investor to consider buying. Presently however there does appear to be some enticing opportunities.
From the equipment and services industry three stocks stand out not only for their quality and growth attributes but also for their price. Ansell Limited (ASX: ANN), Cochlear Limited (ASX: COH) and ResMed Inc. (CHESS) (ASX: RMD) all offer investors above average growth opportunities, exposure to overseas markets and US dollar earnings as well as boasting strong balance sheets and relatively reliable earnings. Importantly, considering their respective opportunities for earnings growth, they don’t appear overly expensive.
Meanwhile within the Pharma, Biotech and LS industry, Sirtex Medical Limited (ASX: SRX) stands out for the same reasons at the three stocks above and looks particularly appealing from a price-to-value point of view given expected future earnings growth.
A second stock which has great growth potential and could be reasonably priced is Acrux Limited (ASX: ACR). Acrux however, unlike the other four stocks mentioned above is still quite speculative which does make it higher risk.
There are certainly risks associated with the health care sector. Those risks are not just speculative due to early stage, yet to turn a profit type stocks either. They are also the risks associated with paying an overly-inflated price for a good quality stock that is growing.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
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