My ideal investment portfolio is stacked with great healthcare companies.
I find it hard to ignore companies with strong pricing power and healthcare is full of cozy niches where competitive advantages generate high returns over long periods of time – a perfect combination for compounding wealth.
ResMed Inc (ASX: RMD) is high on my list and there are three reasons I think the company is well positioned to keep winning in the years to come.
1. ResMed is among the healthcare ‘outperformers’
Even in the healthcare sector there are duds to be avoided.
What makes ResMed different is that it has made its way into the S&P/ASX 200 Health Care Index (Index: ASX: XHJ) a group of well established businesses which have consistently crushed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the last few years.
Those companies with big exposure to the U.S. market, like ResMed, CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) are doing especially well as healthcare spending tops 18% of the country’s entire GDP.
Healthcare spending will continue to grow around the world as the current demographic ages and companies with strong competitive advantages, like superior technology and patent protection, should be able to capture a growing share of this.
2. Sales are growing at a great pace
ResMed has been executing well on the opportunity for growth so far with sales in the full-year 2017 lifting 12%.
The positive momentum has continued into 2018 and the company’s recent third quarter update looked very positive with revenue increasing 10% and net income jumping 25% (excluding the impact of foreign exchange). This is on top of a strong second quarter and I think ResMed should be able to sustain this level of sales growth over the next few years.
3. ResMed’s sales mix is almost all offshore
Generating sales and revenue from around the world has the same benefit as diversification in your own portfolio where risk is spread if there is weakness in any one region.
If you own a lot of local companies in your portfolio this is especially useful. In the 2017 financial year sales in North and Latin America accounted for 63% of ResMed’s net revenues, while Europe accounted for 26% and the Asia Pacific accounted for 11%.
The diversification will keep ResMed on a strong earnings base to grow to support re-investment in research and development, strengthening the company’s advantage to help it win for years to come.
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You can follow him on Twitter @Regan_Invests.
The Motley Fool Australia has recommended ResMed Inc. 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.