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Top broker says sell Ramsay Health Care Limited (ASX:RHC) and buy ResMed Inc (ASX:RMD) shares

The Ramsay Health Care Limited (ASX: RHC) share price has had a solid day of trade on Tuesday and is up 1% to $54.92 at the time of writing.

Unfortunately for shareholders, though, one broker doesn’t expect these gains to continue. In fact, it has predicted a decline of around 11% for its shares over the next 12 months.

Who is bearish on Ramsay Health Care?

According to a broker note out of Goldman Sachs this morning, it has retained its sell rating and $49.00 price target on the private hospital operator’s shares following a recent look into the Australian healthcare sector.

Last week the broker hosted the 15th Annual Goldman Sachs European Medtech and Healthcare Services conference in London.

While this event focused on European businesses, the broker found broad themes and key takeaways that were relevant to its ASX healthcare coverage as well.

In respect to Ramsay, this included a European hospital market which is experiencing headwinds from legislated changes around minimum nurse staffing levels.

Fresenius SE, Europe’s largest private hospital operator with operations in Germany and Spain, expects increased competition for nurses to drive up wages. As a result, it believes the days of earnings growth being substantially ahead of sales growth are over. This could be the same for Ramsay’s France-based hospitals.

In addition to this, it has suggested that it is looking to enter a third European market in due course. While it ruled out France, it refused to rule out entering the UK market. This could lead to increased competition for Ramsay in the UK.

Which healthcare shares should you buy instead of Ramsay?

The broker has suggested that investors consider ResMed Inc. (ASX: RMD) ahead of Ramsay and fellow sleep treatment specialist Fisher & Paykel Healthcare Corp Ltd (ASX: FPH).

This is because the Philips CEO was at the event and advised that he continues to believe that sleep apnea is one of the higher growth segments within the company and expects to see market growth in the high single digits.

Goldman appears to agree with this and believes both Philips and ResMed are poised to benefit. As such, it has a buy rating and $16.70 price target on ResMed’s shares. The broker remains neutral on Fisher & Paykel Healthcare largely on valuation grounds.

Should you invest?

I completely agree with Goldman on all three of these recommendations, but especially on Ramsay. I don’t believe Ramsay is over the worst of it yet and would suggest investors stay clear of the company despite how much cheaper its shares are now compared to a year ago.

As well as ResMed, I think these blue chips are in the buy zone right now. Do you own them?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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.

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