The healthcare sector is my favourite sector out of all the different industry choices. I really like that it has a strong tailwind with Australia’s ageing tailwind and new treatments mean there’s always more that the industry can ‘sell’ to patients.
There are a number of good quality healthcare stocks on the ASX, but I look for ones that offer both growth and some form of income.
Here are three high on my watchlist:
Ramsay Health Care Limited (ASX: RHC)
Ramsay is almost a certainty on any healthcare top list in my opinion. It operates one of the largest private hospital networks in the world with locations in several countries like Australia, the UK and France. It has very defensive, yet growing, earnings.
The company is consistently investing for further growth and also has plans to expand into a new geographical area like North America or China.
Ramsay’s share price has come under pressure in recent times because the UK and France operations are suffering from short-term growth problems, but management expect this to turn around in the future.
It’s currently trading at 20x FY19’s estimated earnings.
Paragon Care Ltd (ASX: PGC)
Paragon is a small cap healthcare business that provides medical devices and medical equipment to healthcare facilities like aged care providers and hospitals.
More elderly patients in the future should mean more products that Paragon can sell to its customers.
Paragon is steadily acquiring more healthcare businesses so it can sell more products to its original customers and expand to new customers.
It’s currently trading at 13x FY19’s estimated earnings.
Zenitas Healthcare Limited (ASX: ZNT)
Zenitas is a small cap healthcare business that provides primary care, allied care and home care. It is steadily making bolt-on acquisitions to its network which improves its scale and should boost margins in the long run.
I like the idea of Zenitas’ home care offering because the government are keen to reduce the number of patients visiting the high-cost hospitals and I’m sure patients would prefer to be treated at their home too. Management expect that organic growth will be between 7.5% to 10% in FY18, which is a very pleasing growth rate.
Zenitas is trading at around 20x FY18’s estimated earnings.
I think all three businesses have excellent futures and if I were to buy Ramsay or Zenitas I would be topping up thanks to the share price falls because I already own them in my portfolio. At the current prices I’d probably go for Ramsay because this is the lowest price/earnings ratio it has traded at for some time.
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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited and Zenitas Healthcare Ltd. The Motley Fool Australia has recommended Paragon Care Limited, Ramsay Health Care Limited, and Zenitas Healthcare Ltd. 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.