The market loves the below businesses because of their ability to maintain or grow profit margins. Margins matter. Growing margins, indicate bigger profits and share price gains. Falling margins, spell trouble, downsizing, and a potential sell signal for investors.
Sometimes it pays to let the market tell you what to do and with the trio below it says buy. Here’s why.
CSL Limited (ASX: CSL) has enjoyed consistently growing margins thanks to the critical nature of the life-saving products it sells to hospitals around the world. The driver of this stock’s growth has been ongoing earnings upgrades on the back of expanding margins, and this is a phenomenon that may be repeated. Selling for $69.77 the price-earnings is 23 and yield 1.7%.
ResMed Inc. (CHESS) (ASX: RMD) grew its net profit margin for the first quarter of 2014 more than 2% over the corresponding quarter in 2013. With a massive global market for the treatment of sleep disorders, ResMed evidently has few worries growing revenues. In fact they grew at an average annual 13% every year over the past five years.
Moreover, for the most recent quarter it grew operating profit and earnings-per-share at a faster pace than revenues. Carry on like this and it’s hard to see much stopping this stock’s growth over long-term horizons. Selling for $5.47 the price-earnings is 21 and yield 1.7%.
Ramsay Health Care Limited (ASX: RHC) has also been able to grow margins on a consistent basis over the past few years. It operates private hospitals where costs are relatively fixed, which gives it the operating leverage to charge more as demand increases. Growing free cash flows have supported expansion abroad and private healthcare is a clear growth area. Selling for $47 the price-earnings is 29 and yield 1.7%.
Ageing populations, rising obesity and huge global markets are just some of the other themes to support these companies long into the future, ResMed perhaps the best at current prices.