The healthcare sector is usually a good place to look for potential investments. The long term prospects for the industry are generally promising and well known.
Healthcare is defensive in nature, Australia has an ageing population and the government is encouraging people to obtain private health cover which is good for private medical insurers such as Medibank Private Ltd (ASX: MPL) but also for private hospitals.
However, it’s not just the quality of the business you have to think about, it’s also the price you pay for it. CSL Limited (ASX: CSL) for example is a high quality business, but its PE ratio of 37 suggests that the market recognises that quality and as such it’s trading at a premium.
With that in mind, here are three cheap healthcare stock worth buying today:
- Ramsay Health Care Limited (ASX: RHC) operates over 200 hospitals and surgery facilities in Australia, the UK, France, Indonesia and Malaysia. It made significant capital investments at a time when development costs were low and its established hospitals tend to be in areas with few private competitors. The company is also pursuing a pharmacy growth strategy which complements its existing revenue streams. Ramsay is also the market leader in the private hospital sector in France and has a good track record of growth whilst effectively managing its costs. It’s currently trading at a PE ratio of 26 and has a return on equity of 21%.
Sonic Healthcare Limited (ASX: SHL) is an international medical diagnostics company which offers pathology and radiology services. It is now the largest Australian pathology laboratory operator which gives it a significant cost advantage. It has a sizeable presence in the US and European pathology markets it has previously grown via acquisitions and synergies maintained across its business. Sonic is currently trading at a PE ratio of 19.
Healthscope Ltd (ASX: HSO) is the second-largest provider of private hospital services in Australia and a leading provider of pathology services in New Zealand, Malaysia, and Singapore. It has a strong balance sheet with freehold ownership of 30 of its hospitals. It is also pursuing growth through brownfield hospital expansion projects. Healthscope currently trades at a PE ratio of 18.
Where to invest $1,000 right now
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*Returns as of February 15th 2021
Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.
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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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