Aren't healthcare stocks with a decent dividend yield supposed to be in fashion?
Not when it comes to fertility services stocks such as Monash IVF Group Ltd (ASX: MVF) and Virtus Health Ltd (ASX: VRT).
But this is the time to buy the stocks as I think their underperforming share prices are about to play catch up with the broader market.
The chart below says it all. Since the start of the financial year, Monash has tumbled 12% and Virtus has shed nearly 7% of its value.
In contrast, the S&P/ASX 200 Health Care Index and the broader ASX 200 Index (Index: ^AXJO) (ASX: XJO) are up 32.5% and 5.1%, respectively.
The stocks have fallen out of favour with investors because demand for In vitro fertilisation, or IVF, is proving to be more discretionary than what many investors thought and poor consumer confidence has been dragging on the profitability of IVF clinics.
But consumer confidence is recovering in the wake of the federal budget and while all the excitement has been on retailers, most have forgotten to think about Virtus and Monash.
I am not suggesting there is a direct link between the federal budget and IVF, but there is clearly a recovery in demand that is born out in the latest Medicare data.
The April statistics show a 7.4% growth and brokers like Morgan Stanley believe the IVF cycle growth is bouncing back to an average 3% to 4% over the longer term.
Cycle growth for Virtus came in at 0.4% for the first half, which also reflects growing competition in the sector.
But the bad news has been more than reflected in the share prices of Monash and Virtus, in my opinion.
Monash is trading on a 2015-16 consensus forecast price-earnings multiple of 13.3x, while Virtus is on a 15.7x multiple when the sector is on a P/E that's well ahead of 20x.
What's more, both stocks have a yield of around 5%. That should be enough to get any bargain hunter excited.
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