Why I think the market is wrong about the healthcare sector

If your portfolio is heavily weighted to the healthcare sector, your returns for the last few months may be in need of medical attention. Healthcare stalwarts such as Cochlear Limited (ASX: COH), CSL Limited (ASX: CSL), and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) have all declined around 20%. No doubt shareholders will be looking for answers, as is their right, but it is important not to start jumping at shadows.

Contrary to what their share prices infer, I believe the case for investing in each has actually improved over this period. Prior to the correction in prices, healthcare stocks were sitting on the higher end of historic valuations, while not reflecting the uncertainty surrounding the US election and the impact of proposed legislative changes under a Clinton administration. As such I believe with the election of Donald Trump this equation has been flipped on its head.

More good news came in the form of advice from the US federal reserve in October regarding its intention to raise interest rates sooner rather than later. The reason this is good news for the above mentioned companies is because as rates rise, a rise in the US dollar against the Australian dollar should follow. With each company deriving a significant slice of their revenues in US dollars, any rise in the US dollar will have positive impacts on the companies’ bottom lines.

Company Guidance

While external factors are important, it is vital to also consider individual company metrics before making an investment decision. Here again, this lends support to my proposal that the investment case for each company has actually improved, with each company recently offering positive guidance in Net Profit After Tax (NPAT) for the next 12 months (see below).

  • Cochlear – NPAT up 15% (mid-point)
  • CSL – NPAT up 11%
  • Fisher & Paykel – NPAT up 20% (over previous 12 months)

Foolish takeaway

While it is never pleasant to see your portfolio decline in value, it is important not to imagine fundamental problems where none exist. I am yet to meet anyone who predicted the market would rebound as strongly as it has under President elect Donald Trump, investors who were pragmatic and understood that the world was unlikely to end have been justifiably rewarded.


Attention investors: The Motley Fool's dividend expert Andrew Page has just released his #1 dividend stock for 2017. Chances are you've never heard of this little company, yet it's a fast-growing consumer favourite - with the shares up 155% in just the last five years! Even better, it's throwing off loads of cold, hard cash. As we speak, these shares are trading on 4.2% dividend yield, fully franked (6.0% gross). Making it a 'best bet' for growth AND income... No credit card required.

Simply click here to discover the name, code and a full investment analysis in our brand-new FREE report, "The Motley Fool's Top Dividend Stock for 2017."

Motley Fool contributor Alan Edmunds owns shares of Cochlear Ltd., CSL Ltd., and Fisher & Paykel Healthcare Limited. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.