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Why Ramsay Health Care Limited is one of the best ASX shares to own

Credit: Pictures of Money

Because the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) provides investors with such a large range of quality shares to invest in, I believe at times it can be hard to separate a good investment from a great investment.

I feel there are two key things that most investors would want from an investment. That is strong returns and minimal fuss. I’m sure few investors would want to babysit their portfolio, but rather do it the Warren Buffett way and sit back and watch it grow.

There are a number of shares on the S&P/ASX 200 which could fit the bill. But the one that I am going to focus on today is health care service provider Ramsay Health Care Limited (ASX: RHC).

The first thing that attracts me to Ramsay Health Care is its fantastic track record for providing shareholders with market-beating returns. In the last 10 years the shares have provided an average total shareholder return of 24% per annum.

That means that $10,000 invested in Ramsay Health Care 10 years ago would now be worth just under $86,000 today!

Perhaps the best thing about Ramsay Health Care is that I believe it can continue this great run of providing market-beating returns thanks to its strong earnings growth potential. Through its 221 hospitals and 25,000 beds across six countries the company is expected to grow earnings by a huge 22% per annum for the next couple of years at least.

The future does look very bright for the company in my opinion. Management believes demand for healthcare globally will remain strong with ageing populations, longer life expectancy, increased chronic disease burden, population growth, and improvements in treatments and diagnostic methods.

As well as growing organically, the company has many other avenues for growth. Whether it be through capacity expansion at existing sites, public and private collaborations, or acquisitions, I expect Ramsay Health Care to be able to continue growing at a strong rate for years to come.

Then there is the China market. There was a touch of disappointment in March following the company’s decision to pull out of a joint venture with Chinese company Jinxin in the city of Chengdu.

This was disappointing, but it was due to certain conditions from the joint venture not being met. For this reason I feel management made the right decision. I would much rather a company waits for the right time to enter the market, rather than rush into things.

The only negative is that the shares do come at a premium to the rest of the healthcare sector. Currently they are changing hands at 28x estimated FY 2016 earnings, compared to the estimated sector average of 26x for FY 2016 earnings.

But with such strong growth prospects I believe it is well worth paying the premium. I have little doubt that Ramsay Health Care will outperform peers such as Healthscope Ltd (ASX: HSO) and Sonic Healthcare Limited (ASX: SHL) in the long-term.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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