The healthcare industry has been one of the best performing industries over the last few years and could have another good year in 2017.
Next year could be an uncertain environment with Donald Trump taking office and Brexit likely starting to take shape. As such, it might be defensive shares like healthcare that outperform.
There are a number of different types of healthcare businesses. Here are three that I think are worth adding to your portfolio:
Medibank Private Ltd (ASX: MPL)
Medibank is the largest private health insurer in Australia with a market capitalisation of $7.7 billion.
It had a great 2016 financial year (FY16) and grew its net profit after tax by 46%. This was largely off the back of a decrease in expenses and an increase in premium revenue, which saw its health insurance operating margin increase from 5.6% to 8.3% — a strong result.
The Australian Government wants to decrease the overall cost of healthcare to its budget, so there will always be a desire to push more of the public into taking up health insurance, boosting Medibank's potential customer base.
Medibank is trading at 18x FY17's estimated earnings with a grossed up dividend yield of 5.61%.
NIB Holdings Limited (ASX: NHF)
NIB is one of the smaller private health insurers with a market capitalisation of $2.1 billion. It has been steadily increasing its market share: in FY16 it grew market share from 7.9% to 8.1% which represented net policyholder growth of 3.8%.
In FY16 NIB also grew its earnings per share by 22.5% and grew its dividend by 28.3%, which is a great result by a company in a defensive sector. If it keeps slowly growing its market share then NIB will be in a strong position over the coming years.
It's trading at 19.6x FY17's estimated earnings with a grossed up dividend yield of 4.38%.
CSL is Australia's largest healthcare business with a market capitalisation of $45 billion. Its main area of business is plasma products but is also in the vaccine and pharmaceutical space.
CSL's share price has decreased by 17.7% from $120.86 in July 2016 to today's price of $99.41. I think this is a great opportunity to buy one of Australia's most reliable companies at a discount price. There will likely always be demand for CSL's products, therefore there should be growth for a long time to come.
CSL is trading at 25x FY17's estimated earnings with a dividend yield of 1.74%.
Foolish takeaway
All three of these companies will likely produce strong results over the next five years but if I had to choose one, I'd pick NIB to provide the best total shareholder return in the medium term.
