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Why I think Ramsay Health Care Limited shares are a buy

Whilst there are countless quality options for investors in the healthcare sector, one of the best in my opinion would have to be private hospital operator Ramsay Health Care Limited (ASX: RHC).

Although the Ramsay Health Care share price performance was a bit of a disappointment in 2017, I’m confident things will be much better this year.

Last year Ramsay’s shares provided a return of about 4% including dividends. While this isn’t terrible, it pales in comparison to the gains made by healthcare sector peers CSL Limited (ASX: CSL), Medical Developments International Ltd (ASX: MVP), and Pro Medicus Limited (ASX: PME).

Why did Ramsay underperform its peers?

The surprise retirement of its long-serving CEO Chris Rex, falling private health insurance participation rates, and weaker-than-expected FY 2018 guidance have all weighed on its shares over the last 12 months.

As has the decision by Charlie Aitken’s AIM Global High Conviction fund to short its shares. Mr Aitken believes Ramsay is expensive for its growth profile and is subject to regulatory risks.

While I do agree that Ramsay is reasonably expensive at 30x trailing earnings given its FY 2018 profit growth guidance of 8% to 10%, I do feel it deserves to trade at a premium to the market-average due to its strong long-term growth prospects.

There are few shares on the local market which stand to profit as greatly as Ramsay from ageing populations and increased chronic disease burden around the world.

As a result of these tailwinds, its global footprint, and ability to expand through acquisitions or brownfield expansions, I believe Ramsay is capable of delivering above average earnings growth for the foreseeable future.

In my opinion, this makes it well worth considering Ramsay as a long-term buy and hold investment. It may not provide market-beating returns every year, but over the long-term I expect it to vastly outperform the market.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended PRO Medicus Ltd. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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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