I'm a fan of the healthcare sector. I like it because most businesses in the industry have a reliable source of earnings – patients will usually spend what it takes to remain alive and healthy. Plus, people don't choose when they get sick or injured.
I also like the healthcare industry because it's projected that expenditure will keep increasing over the long-term. The ageing population means that more people will require healthcare, the older we get the more likely we are to need healthcare intervention. It also helps that our total population is growing.
Here are two small cap shares to potentially profit from the sector:
Paragon Care Ltd (ASX: PGC)
Paragon operates as a healthcare equipment and device distributor for various clients like hospitals and aged care providers.
It keeps acquiring bolt-on businesses, such as the recent surgery business acquisition, so that it expands its offering to sell more products to the same client and also attain new customers. Hopefully the bigger Paragon gets the larger the economies of scale will become.
In time more patients in hospitals (due to ageing demographics) should lead to more demand for Paragon's products.
Paragon is currently trading at 13x FY19's estimated earnings.
Zenitas Healthcare Ltd (ASX: ZNT)
Zenitas is another small cap healthcare operator. It provides primary care, allied care and home care. It can keep patients within its system by cross-referring people to different segments of its business when necessary.
I believe home care and allied care are exciting areas because people want to remain healthy as possible – being active is part of the solution. If they are sick or having trouble then I'm sure people would rather be treated at home rather than a hospital, I know that would be my preference. It also plays into the government's desire to avoid expensive hospital visits.
Zenitas management are predicting that it will achieve organic revenue growth of between 7.5% to 10% in FY18. It's currently trading at around 19x FY18's estimated earnings.
Foolish takeaway
I believe both businesses are excellent opportunities because their share prices have been beaten up in recent months. However, small caps are riskier than large caps and the share prices will likely remain volatile. At the current prices I'd probably go for Zenitas because it's expecting growth whereas Paragon may not deliver growth this year.
