The share price of market darling CSL Limited (ASX: CSL) may be trading 3.2% higher at $130.11 since the start of August, but it won't find a place at the reporting season heroes' table this year.
Those seats are reserved for the likes of engineering contractor Worleyparsons Limited (ASX: WOR), travel agency Flight Centre Travel Group Ltd (ASX: FLT) and wealth manager Perpetual Limited (ASX: PPT).
Is this game over for CSL given its stock is trading at a hefty 70% 12-month forward price-earnings (P/E) premium (based on consensus estimates) to the S&P/ASX 200 (Index:^AXJO) (ASX:XJO)?
The same argument could also be levelled against others in the large cap healthcare sector as these stocks have been a hot favourite of investors over the past several months leading into the reporting season.
There should always be space in your portfolio for expensive defensives, in my opinion. This doesn't mean you should buy any or all large cap healthcare stocks, but CSL is one that should be on your buy list because I believe its premium is justified for a number of reasons.
For one, it is well placed to deliver solid profit growth for FY18, particularly given the positive growth trends in blood products in the US that are being reported by the US Plasma Protein Therapeutics Association (PPTA).
Let's not forget the favourable global ageing demographic trends that also provide a tailwind to stocks like CSL!
CSL also provides good offshore exposure (another theme I believe investors should be exposed to for FY18), has a strong market position, and has a number of near-term catalysts.
Credit Suisse highlighted two in its latest report – the Food & Drug Administration's (FDA) decision on CSL's Privigen and Hizentra in Chronic inflammatory demyelinating polyneuropathy (CIDP), which is expected in early and mid CY18, respectively.
Another that I like for much the same reasons is hospital operator Ramsay Health Care Limited (ASX: RHC). Even though I have to admit that the stock is looking a little expensive at these levels and its French operations are struggling to deliver nearer-term growth.
Are there healthcare stocks you should be wary of? Credit Suisse warns that the ones that could struggle are those with large domestic exposure and structural headwinds. Two that the broker does not like are Healthscope Ltd (ASX: HSO) and Primary Health Care Limited (ASX: PRY).
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