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Why I would buy these small cap healthcare shares

When it comes to the healthcare sector a lot of investors will go straight to large cap shares such as CSL Limited (ASX: CSL) and Ramsay Health Care Limited (ASX: RHC).

While these two shares have deservedly gained a reputation for being among the highest quality businesses in Australia, I think investors ought to also consider shares at the small-end of the sector.

Two small cap healthcare shares that I think could provide strong long-term returns for investors are listed below. Here’s why I like them:

Nanosonics Ltd. (ASX: NAN)

Since this infection control specialist released its half-year result last month, its shares have fallen around 13%. As you might have guessed from the share price reaction, these results fell short of the market’s expectations. Whilst I was a touch disappointed with its performance in the first-half, I don’t think it was anywhere near as bad as the share price decline implies. During the half the company advised that the installed base of its popular ultrasound disinfection system, Trophon EPR, grew 14% to 14,100 units in North America. Despite the strong growth that Trophon EPR has achieved, it still only has a small slice of the global market. Considering the product is regarded as the best in its class and environmentally-friendly, I expect it to continue to win market share over the coming years. Another driver of growth in the future could be two secret products that are in development that management believes serve an unmet need.

National Veterinary Care Ltd (ASX: NVL)

One thing that Australians and New Zealanders have in common is a love of pets. Recent research shows that pet ownership in both countries is at high levels, which is great news for veterinary clinics. As one of the leading veterinary clinic operators in the region, I believe National Veterinary Care is in a great position to grow over the coming years. I believe this growth will come both organically and through acquisitions thanks to the company operating in a highly fragmented veterinary industry. In the first-half of FY 2018 National Veterinary Care delivered a 27.6% increase in revenue to $41.6 million and a 27.7% lift in net profit after tax to $3.3 million. I feel confident that it will be more of the same in the second-half.

As well as Nanosonics and National Veterinary Care, I think these stars of the future could be great investments today.

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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 Nanosonics Limited. The Motley Fool Australia owns shares of NATVETCARE FPO. 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 Scott Phillips.

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