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Why I would buy these small-cap healthcare shares

Healthcare

The healthcare sector has been tipped as one of the best areas of the market to invest in for the long-term due to the expected increase in demand for its services over the next couple of decades.

Whilst blue-chip shares such as Ramsay Health Care Limited (ASX: RHC) and CSL Limited (ASX: CSL) are likely to be big winners from this and could provide solid returns for investors, I believe even greater returns may be found in the small-cap space.

Two small-cap healthcare shares I would buy today are listed below:

Lifehealthcare Group Ltd (ASX: LHC)

There had been concerns that the future profitability of this medical device company would be impacted greatly from reforms to the Prostheses List. But according to management these reforms will not have as great an impact on its financials as first feared. Because of this, the company was able to reiterate its full-year guidance of high single to low double digit growth in revenue, underlying EBITDA, and underlying earnings per share this year. At under 16x trailing earnings and providing a trailing partially franked 5.1% dividend, LifeHealthcare could be a great investment in my opinion.

Zenitas Healthcare Ltd (ASX: ZNT)

Unlike LifeHealthcare, government reforms have actually been highly favourable for Zenitas. The home care and health services company stands to benefit greatly from the National Healthcare Reform pushing the burden of healthcare services from hospitals into primary care. In FY 2017 the company reported a 27% increase in underlying EBITDA. I expect more of the same in FY 2018 thanks to organic growth and its recent run of earnings accretive acquisitions.

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As of 2.11.2020

Motley Fool contributor James Mickleboro has no position in any of the 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.

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