Healthcare companies can make great additions to your portfolio as they are generally less exposed to changes in the business cycle. Because healthcare is a basic human need, these companies can remain profitable even in an economic downturn.
Therefore, parking some of your money in healthcare stocks can be a good defence against a market crash. Luckily for us, the ASX boasts some of the world’s leading healthcare companies. Here are three worth adding to your portfolio.
ResMed (RESMED/IDR) (ASX: RMD)
ResMed is a world leader in the treatment of obstructive sleep apnoea as well as other respiratory conditions. An aging population in many developed nations, coupled with the obesity epidemic, means sleep apnoea and other related conditions are becoming increasingly common worldwide. ResMed’s patented face masks and ventilators, as well as their other products and cloud-based technologies have helped to treat these sorts of chronic respiratory illnesses for millions of patients.
ResMed’s financial results for the third quarter FY18 were strong. Revenues were up 15% over third quarter FY17 to US$591.6 million, and net income increased by 25% to US$110.1 million. It currently trades at a multiple of a little under 40x earnings, which actually makes it quite cheap relative to its very expensive peers.
Ramsay Health Care Limited (ASX: RHC)
Ramsay Health Care is one of the top 5 private hospital operators in the world, with 235 medical facilities located across Australia, France, the UK, Italy, Indonesia and Malaysia. It treats over 3 million patients each year, providing services including day surgery, complex surgical procedures, and psychiatric care and rehabilitation.
Its share price has taken a bit of a battering in recent weeks after the company announced that it would recognise a charge of GBP 70 million ($125 million) in its full year FY18 results due to an onerous lease provision and asset write downs across several of its UK facilities. Ramsay was also forced to update its FY18 earnings guidance in light of disappointing May results, declaring that it now expected full year EPS growth of 7%, lower than its previous guidance of between 8% and 10%.
In other company news, one of Ramsay’s French subsidiaries, Ramsay Générale de Santé, announced it was making an unsolicited $1 billion takeover bid for Swedish-based European healthcare group Capio. The announcement was released late Friday afternoon in Australia, so it will be interesting to see how the market digests the news this week.
Cochlear Limited (ASX: COH)
Headquartered in Sydney, Cochlear is a global leader in hearing implants. In its first half FY18 investor presentation, Cochlear claimed that 360 million people are affected by disabling hearing loss, but global market penetration for hearing implants is still less than 5%. This means that there is plenty of room for continued growth, and the company’s key priorities include growing demand through increased brand awareness as well as gaining access to emerging markets.
First half FY18 results were strong, with revenues up 6% over first half FY17 to $640 million and EBIT up 3% to $160 million. Cochlear’s bottom line was hurt by a one-off non-cash expense caused by changes in US tax legislation: net income decreased by 1% against 1H17 to $110.8 million. Cochlear still expects revenue momentum to continue in the second half, while the full year negative impact on net income from the changes to US tax law will be somewhere between $3 million and $4 million.
ResMed is a consistent performer with a global presence that seems reasonably priced right now. Put it on your watch list and keep a look out for its quarterly update in a couple of weeks.
Despite its recent earnings downgrade, Ramsay still remains a strong prospect for long-term growth. Whether or not its bid for Capio is successful, at least the company is demonstrating to investors that it is set on expanding its global footprint.
But I would suggest Cochlear is a no-brainer when looking at shares to buy for your portfolio. It’s one of the first shares I ever bought, based on the fact that it’s a mature, established company with globally renowned technology that still offers incredible potential for longer term growth.
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Motley Fool contributor Rhys Brock owns shares of Cochlear Ltd. and Ramsay Health Care Limited. The Motley Fool Australia has recommended Cochlear Ltd., Ramsay Health Care Limited, and 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.