The healthcare sector has been one of the best places to invest during the last five years. During this time the S&P/ASX 200 Healthcare (Index: ^AXHJ) (ASX: XHJ) has provided a return of over 113%.
This compares to a disappointing 11.5% gain by the benchmark S&P/ASX 200, though both figures exclude dividends.
While I wouldn't necessarily expect the sector to deliver the same level of return over the next five years, I believe population growth, increased chronic disease burden, and ageing populations could lead to market-beating returns for many healthcare shares.
Three top healthcare shares that I would consider buying are listed below:
CSL Limited (ASX: CSL)
If you only buy one healthcare share I would suggest you make it CSL. In my opinion, this is the highest quality company on the Australian share market and a great buy and hold investment option. This is due to the biopharmaceutical company's strong long-term earnings growth potential, outstanding management team, and attractive valuation.
Nanosonics Ltd (ASX: NAN)
I think this infection control specialist could be a great option due to its increasingly popular trophon EPR product. This product has grown its installed base at a strong rate over the last few years due to being regarded as the best in its class. Its total global installed base grew 25% to 17,740 units in FY 2018, but still has a significant runway for growth. Management estimates that its total market opportunity is 120,000 units worldwide, meaning it currently has a 15% share. In addition to this, the company has its eyes on other areas of the market which have unmet needs. Its shares are expensive, though, and may only be suitable for investors with a high tolerance for risk.
ResMed Inc. (ASX: RMD)
I think that this sleep treatment company isn't far behind CSL in terms of quality. It has a long track record of solid earnings growth and didn't disappoint in FY 2018 when it posted a 13% increase in revenue to US$2.3 billion and a 27% lift in income to US$541.8 million. Pleasingly, due to the positive outlook for the sleep treatment market and management's focus on the fast-growing cloud-connected medical device market, I expect it to continue growing earnings at an above-average rate for many years to come.
