With the ASX once again losing ground today it is becoming difficult for investors to get a bearing on which direction the market is headed.
This week Chinese regulators have stepped in again to curb unprecedented market falls, which have led to the Shanghai Composite Index tanking around 30% in just three weeks. Add in the turmoil in Greece and it is fair to say that investors are facing an uncertain global macro outlook.
The outlook closer to home isn't really any better with economists forecasting muted growth over the coming year and talk of further cuts to the official interest rate. With that low growth scenario in mind, owning some defensive stocks with the ability to grow earnings no matter what the outlook for the domestic economy makes a lot of sense.
The medical device industry is one sector that can be a particularly good hunting ground for uncovering high-quality businesses that can withstand economic headwinds. Examples of ASX-listed companies that have excelled through different economic cycles include ResMed Inc. (CHESS) (ASX: RMD) and Sirtex Medical Limited (ASX: SRX).
A third medical device company which has grown to become a global leader in its field of cochlear implantable hearing devices is Cochlear Limited (ASX: COH).
Cochlear is an appealing stock for a long-term conservative portfolio and with the share price having underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the past month by around 5%, now could be an opportune time to take a closer look at the company.
1) Appealing Product Pipeline
Cochlear began rolling out a new suite of products during financial year (FY) 2014 across all categories. As these new products gain traction, growth is building and will be enhanced by further regulatory approval including the new wireless accessories for the Nucleus 6 product.
2) Currency tailwind
Because of Cochlear's global operations, Asia Pacific only accounts for 15% of sales with the Americas accounting for the bulk with a 44% share of sales and Europe/Middle East/Africa (EMEA) accounting for a further 41%. This spread of sales means Cochlear is exposed to multiple currencies including the US dollar which has been strengthening against the Australian dollar.
3) Appealing Valuation
Based on consensus data provided by Morningstar, Cochlear is forecast to grow earnings per share between FY 2014 and FY 2016 by a staggering 93%; this implies a FY 2016 price-to-earnings ratio of 24.6x.