One of the few undeniable trends for Australia over the next 10 or 20 years is that our population is steadily ageing. There is going to be a deluge of people reaching retirement age over the next two decades. According to statisticians, the number of over 65s will increase by 75% over the next 20 years.
There are several ways to play this trend, one of the easiest is to say that healthcare businesses will benefit because the elderly are more likely to need to use healthcare services in some way.
So, with that in mind, here are three healthcare shares that are well worth putting on your watchlist:
Ramsay Health Care Limited (ASX: RHC)
Ramsay is Australia’s largest private hospital operator and one of Australia’s biggest healthcare companies. I like hospitals as an investment idea because it’s a generalist way to get exposure to all health issues. It also has a certain monopoly in the area because another private hospital isn’t going to be built right next door.
It’s a high quality company that continues to re-invest profits back into the business to expand existing hospitals and build new ones.
A future catalyst for share price growth could be if it announces it’s expanding into another geographical area like North America or China.
It’s currently trading at 22x FY18’s estimated earnings.
Paragon Care Ltd (ASX: PGC)
Paragon Care is a small cap business that is growing through acquisitions. It is looking to expand its product range so that it can essentially offer lots of the items that a hospital or aged care facility would want like beds, devices or surgery equipment.
More patients going to hospitals and aged care facilities should mean more demand for Paragon’s products. As Paragon gets bigger it should create economies of scale which will hopefully boost its profit margins.
Paragon is currently trading at around 14x FY18’s estimated earnings.
Japara Healthcare Ltd (ASX: JHC)
Japara is one of Australia’s largest aged care providers. Assuming the government doesn’t continue to increase home care funding substantially, aged care facilities should experience an influx of residents over the next two decades.
Japara is heavily investing to account for the expected growth by building and expanding facilities. Japara is expected to complete around 1,000 new beds over the next few years which would add a lot of additional revenue and also shrink expenditure.
It’s currently trading at 25x FY18’s estimated earnings.
At the current prices I’d be happy to add to my positions of all three shares, considering they are all trading a long way below their all-time highs. I believe in five and ten years from now, they will all be much more profitable companies.
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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET, Paragon Care Limited, and Ramsay Health Care Limited. The Motley Fool Australia has recommended Paragon Care Limited and 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.