Should you buy Ramsay Health Care Limited or Healthscope Ltd in 2017?

In the last five years the shares of Ramsay Health Care Limited (ASX: RHC) have provided shareholders with an average total return of 31% per annum.

Unfortunately though 2016 hasn’t quite lived up to previous years. As things stand the private hospital operator’s shares looks set to end the year in negative territory with a 0.6% decline.

Whilst this is disappointing, it is still a great deal better than Healthscope Ltd (ASX: HSO). The rival private hospital operator’s shares are down around 15% year to date thanks largely to its disastrous market update in October.

Healthscope warned that demand for its hospitals had been weak thus far in FY 2017. If things don’t improve as the year goes on then management believes there will be no EBITDA growth from its hospitals in the current fiscal year.

In response to this Ramsay reaffirmed its full year earnings growth guidance of 10% to 12% in stating that its strategically diversified portfolio of hospitals continues to deliver admissions growth in line with its long term trend.

I was impressed to see that despite the apparent weakness in hospital admissions growth this year, Ramsay continues to grow unabated. This in my opinion demonstrates the high quality of Ramsay’s operations and is why I believe it is worth paying 25x estimated FY 2017’s earnings to own its shares.

Healthscope’s shares may appear far cheaper at 20x earnings, but that strikes me as actually being quite expensive if it ends up delivering zero earnings growth.

All in all, I think Warren Buffett sums up my view on these two hospital operators perfectly with this well-known quote: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Healthscope may be a tempting turnaround investment next year, but if I were to choose just one of them to invest in it would be Ramsay.

Would Warren Buffett invest in Ramsay? I think he'd consider it. But one Australian share he'd almost certainly invest in is this hot stock. With ten successive years of dividend increases behind it, it could be the best dividend share on the ASX in my opinion.

The 1 Thing Every Investor Should Know About Buffett's Portfolio

You've probably heard a lot about billionaire investor Warren Buffett. After all, a herd of analysts and journalists has tracked his every move - for decades. Yet here's something you may not know...

Simply click here to learn more.

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.

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.